Treasuries Rally in Hunt for Yield as ECB Begins Bond Buying

Treasuries rallied the most in almost two weeks as investors took the start of the European Central Bank’s quantitative-easing program as a signal to seek out the better yields available in the U.S.

Debt yields tumbled across Europe after the ECB and national banks started buying euro-area government bonds Monday in an attempt to stave off deflation. That helped burnish the appeal of Treasuries, as benchmark 10-year notes yielded the most versus German bund equivalents since 1989.

“It’s the QE -- we’re seeing buying across the curve,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 22 primary dealers that trade with the Federal Reserve. “It’s been continuous buying, in line with the move we’re seeing in the bund market and peripherals.”

The benchmark 10-year Treasury yield dropped five basis points, or 0.05 percentage point, to 2.19 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. It declined as much as six basis points, the biggest slide since Feb. 24. The price of the 2 percent note maturing in February 2025 rose 14/32, or $4.38 per $1,000 face amount, to 98 9/32.

The yield on equivalent German securities fell eight basis points to 0.31 percent. The moves pushed the spread between U.S. and German yields to 188 basis points.

The bid from international investors “will aid” the Treasury’s sale of $58 billion in notes and bonds this week, said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.

Record Lows

Anticipation of the ECB’s 1.1 trillion-euro ($1.2 trillion) plan already fueled a debt-market rally that sent yields in the 19-nation currency bloc to all-time lows. ECB President Mario Draghi said last week that the stimulus will spur the euro area’s fastest economic growth in seven years and help return inflation to the ECB’s goal.

German and U.K. government bonds also rose amid renewed concern Greece won’t be able to reach a debt deal with its creditors as talks resumed in Brussels.

A U.S. jobs report March 6 showing better-than-forecast labor growth sent 10-year yields to their highest levels of 2015 on speculation it made a Fed interest-rate increase more likely.

Traders pushed up bets for a jump in rates after the report, with futures showing the odds for a rise by September climbing to 56 percent Monday from 49 percent on Thursday. The Fed has kept its target rate in a zero to 0.25 percent range since 2008 to stimulate the economy.

“Discussion about Fed rate hikes is not a novelty, and I wouldn’t have expected ongoing Treasury weakness,” said Luca Cazzulani, a senior rates strategist at UniCredit Bank AG in Milan. “Treasuries are holding up well partly because of the ECB’s QE program and revived concern about Greece.”

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