Treasuries Gain as European Tensions Overshadow U.S. DataCordell Eddings
Treasuries gained, pushing 30-year bond yields to a 15-month low, as rising tension in Ukraine and speculation the European Central Bank will buy bonds overshadowed data showing the U.S. economy strengthened.
A gauge of government bonds around the world approached a record high on speculation the ECB is preparing further moves to spur a slumping economy. Ukraine said actions by Russia amount to an invasion. Treasuries rallied even as data showed the U.S. economy grew more than initially estimated in the second quarter. The U.S. sold $29 billion of seven-year notes at the lowest yield since May.
“U.S. yields are being driven by global risks rather than domestic,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., of 22 primary dealers that trade with the Federal Reserve, said in a telephone interview. “As long as European yields keep going lower and European data and news continue to outweigh U.S. data, these low yields don’t look like they’re going to change any time soon.”
U.S. 30-year yields dropped three basis points, or 0.03 percentage point, to 3.08 percent at 5 p.m. New York time, Bloomberg Bond Trader data showed. They reached 3.06 percent, the lowest level since May 2013. The price of the 3.125 percent securities maturing in August 2044 gained 17/32, or $5.31 per $1,000 face amount, to 100 31/32.
The benchmark 10-year note yield fell two basis points to 2.34 percent and reached 2.32 percent. It touched 2.30 percent on Aug. 15, the least since June 2013, falling from 3.03 percent at the end of 2013. The yield on the current seven-year note decreased two basis points to 2.02 percent and touched 2 percent, the lowest since Aug. 19.
The amount of Treasuries traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose to $284 billion, from $275 billion yesterday. This year’s average is $323 billion. Daily volume reached $504 billion on Aug. 1, the highest level in three months.
Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasuries based on options, increased to 59.8 basis points, from 56.9 yesterday. The 2014 average is 59.1 basis points.
The seven-year notes sold today yielded 2.045 percent, matching the average forecast in a survey by Bloomberg News of six of the Federal Reserve’s 22 primary dealers, which are obligated to bid in U.S. debt sales. The yield at the last offering of the maturity on July 30 was 2.250 percent.
“The auction was strong,” said Sun of Nomura, which as a primary dealer is obligated to bid in U.S. debt sales. “People showed up despite the low yield levels given the global bid for bonds. And there is demand ahead of the month-end.”
The sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.57, matching the average at the past 10 auctions.
The Treasury sold $35 billion in five-year notes yesterday at a yield of 1.64 percent and $29 billion in two-year notes the prior day at a yield of 0.53 percent. The U.S. also issued $13 billion in two- year floating-rate notes yesterday.
Bank of America Merrill Lynch’s Global Broad Market Sovereign Plus Index rose to within half a percent of its all-time high yesterday based on prices, according to data starting in 1996.
U.S. gross domestic product rose at a 4.2 percent annualized rate, Commerce Department figures showed, up from an initial estimate of 4 percent, after a first-quarter contraction. Economists surveyed by Bloomberg called for a 3.9 percent gain.
“The geopolitical concerns are overriding any kind of economic data,” said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York. “It doesn’t look like it’s going to stop.”
Europe’s bond yields tumbled to records, and investors snapped up government securities elsewhere in search of higher interest payments. ECB President Mario Draghi said in Jackson Hole, Wyoming, last week that policy makers will use “all the available instruments needed to ensure price stability” and are “ready to adjust our policy stance further.” The ECB meets next on Sept. 4.
Germany’s 10-year yields touched 0.866 percent. The yield on comparable French government bonds reached 1.217 percent.
The ECB has hired BlackRock Inc., the world’s biggest money manager, to advise on developing a program to buy asset-backed securities. BlackRock Solutions, a unit of the New York-based company, will provide advice on the design and implementation of a potential ABS-purchase plan, an ECB spokesman said in response to e-mailed questions.
Ukrainian President Petro Poroshenko pledged to step up the country’s defenses against what he earlier called a “de facto” incursion by Russia after pro-Russian separatists gained ground in intensified fighting.
Russia has masterminded a counteroffensive by Ukrainian rebels, with more than 1,000 Russian troops operating inside Ukraine, according to NATO.