Global Yields Slide to Least Since April on Shifting Fed Outlook

  • Sovereign developed yields at 0.96% are lowest in five months
  • U.S. consumer prices fell in September, Bloomberg survey shows

Global bond yields fell to a five-month low as investors cut the probability of the Federal Reserve raising interest rates this year to the least on record.

Sovereign-bond yields in developed markets slid to 0.96 percent on average Wednesday, the lowest level since April 30, according to Bloomberg World Bond Indexes, as weak economic data globally pushed the likeliest date of a Fed rate-increase beyond March 2016. Consumer prices dropped 0.1 percent in September from the year before, based on a Bloomberg survey of economists before the report Thursday in Washington. Treasuries fell for the first time in four days Thursday, as gains in stocks and lower yields began to curb demand.

“The market is assigning a lower probability to a Fed rate hike,” said Hajime Nagata, who invests in Treasuries in Tokyo for Diam, which oversees $146 billion. “Inflation pressure is subdued, and we shouldn’t expect a strong number.”

The probability of an increase by the December policy meeting has dropped to 27 percent, the lowest on record, from 70 percent odds at the start of August, according to futures data compiled by Bloomberg. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff. The probability of a move by the March meeting dropped below 50 percent on Wednesday.

Less Attractive

Benchmark Treasuries are becoming less attractive after 10-year yields fell below 2 percent earlier this week, said Kazuaki Oh’e, a debt salesman at CIBC World Markets Japan Inc. in Tokyo.

The 10-year yield climbed two basis points, or 0.02 percentage point, to 2 percent as of 6:52 a.m. in New York on Thursday, according to Bloomberg Bond Trader data. The 2 percent security due in August 2025 fell 7/32, or $2.19 per $1,000 face amount, to 100 1/32.

Ten-year yields will probably stay above 1.90 percent, said Hideaki Kuriki, a portfolio manager in Tokyo at Sumitomo Mitsui Trust Asset Management, which oversees $56 billion. Kuriki said he plans to trim his Treasury holdings at that level. The U.S. economy is “steady,” he said.

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