Treasuries Rise as Paris Attacks Boost Demand for Safest Assets

  • Attacks may slow growth, won't deter Fed, Nomura's Gorman says
  • Initial demand for haven assets has often proved temporary

Treasuries advanced for a fifth day, in the longest rising streak since July, as investors sought the safest securities following shootings and bombings in Paris that left at least 129 people dead last week.

French and German government bonds also climbed after Europe’s worst terror incident in more than a decade damped demand for shares. The bloodshed took place one day after suicide attacks in Beirut, where at least 43 people were killed. After atrocities attributed to terrorists in Europe and the U.S. in recent years, the initial reaction from traders was to buy Treasuries, German bunds and U.K. gilts.

“We’ve had a bit of a flight-to-quality rally,” said John Gorman, head of dollar debt trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. “Travel, tourism is going to slow down. We’ve already seen concerts that are being postponed. It affects consumer spending and it affects the economies.” The attacks probably won’t be enough to change the course of Federal Reserve interest-rate policy, he said.

The U.S. 10-year note yield fell two basis points, or 0.02 percentage point, to 2.25 percent at 8:43 a.m. in London, based on Bloomberg Bond Trader data. The price of the 2.25 percent security due in November 2025 rose 5/32, or $1.56 per $1,000 face amount, to 100. The five-day decline in yield was the longest since the period ended July 27.

European Bonds

The yield on German 10-year bunds, Europe’s benchmark security, declined two basis points to 0.54 percent, while the yield on similar-maturity French bonds fell one basis point to 0.86 percent. The yields on French, German and Belgian two-year notes touched record lows.

France said its warplanes bombed Islamic State’s nerve center in Raqqa. The French government said the attack was directed from Syria and launched from Belgium. Interior Minister Bernard Cazeneuve told France 2 television the extremist group, which has also claimed responsibility for the blasts in Beirut and the downing of a Russian passenger jet in Egypt, is urging people based in Belgium “to act on French territory and in other European cities.”


Flight-to-safety rallies have typically proven to be short-lived. Gains in government bonds after major terror attacks in recent years were largely erased within days or weeks as more information became available, markets processed the news and no immediate follow-up incidents were experienced. Investigators across Europe on Sunday were racing to piece together exactly how the Nov. 13 assaults in Paris were carried out.

“What happened on Friday in Paris was horrific and it will increase anxiety in the financial markets in terms of what comes next,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “Whatever happens in the markets should prove temporary, but nonetheless it will come through. You could get a rally in the front-end of the Treasury yield curve from an anxiety bid,” he said, referring to the shortest-due securities.

The yield on U.K. 10-year gilts fell eight basis points when London’s transport network was bombed on July 7, 2005, before erasing the decline within two trading days. The pound weakened 0.5 percent, yields on German 10-year bonds slipped four basis points, and those on similar-maturity U.S. Treasuries ended the day down one basis point, erasing almost all of the earlier drop of as much as 14 basis points.

Political Shock

“A setback, in response to a political shock of this scale and significance, is likely,” Credit Suisse Group AG analysts Oliver Adler and Joe Prendergast wrote in a note on Sunday.

“Past experiences with terrorist strikes in Europe, including the Madrid bombings in March 2004 and the attacks on U.K. public transport system in July 2005, suggest that the financial-market impact of even the most severe attacks tends to be short-lived,” according to the note.

For Hideaki Kuriki, a bond manager at Sumitomo Mitsui Trust Asset Management in Tokyo, the attacks are reason to own European bonds. The company, which has $54 billion in assets, expects the region’s debt to rise along with Treasuries.

“Consumer confidence will go down, so that’s not good for the European economy,” Kuriki said. The result will be added pressure on the European Central Bank to increase monetary stimulus measures this year, he said.

(The time stamp for bond prices was corrected in a previous version of this story.)

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