Global Yields Hit 12-Month Low With Japan 2-Year at Minus 0.16%

  • Treasuries decline before Fed's Fischer speaks in New York
  • Report shows U.S. manufacturing shrank for a fourth month

Global bond yields fell to levels not seen in a year while Japan’s extended their push to record lows following Haruhiko Kuroda’s decision last week to cut interest rates.

The yield on a Bank of America Corp. index of sovereign bonds dropped to 1.39 percent on Jan. 29, the least since February 2015. Japan’s 10-year bond yields slid to as low as 0.05 percent, while those on the nation’s two-year securities declined to minus 0.16 percent. Treasuries fell Monday after the 10-year note yield reached a four-month low.

Bank of Japan Governor Kuroda’s decision Jan. 29 to set negative interest rates, adding to stimulus from his record program of asset purchases, is driving speculation lenders will take money out of the central bank and use it to buy bonds. The move gives investors incentive to step up their hunt for higher yields abroad.

“Banks will allocate more money to non-cash-type of investments, and the first priority will be the bond market,” said Hajime Nagata, a bond investor in Tokyo at Diam Co., which oversees $143 billion. “The market is expecting that Japanese investors will allocate more to foreign fixed income.”

The benchmark Treasury 10-year note yield rose three basis points, or 0.03 percentage point, to 1.96 percent as of 11:21 a.m. in New York on Monday, according to Bloomberg Bond Trader data. The 2.25 percent securities due in November 2025 fell 9/32, or $2.81, to 102 20/32. The yield dropped earlier to 1.91 percent, the lowest on an intraday basis since Oct. 2.

German 10-year bund yields were little changed at 0.34 percent, after declining to 0.30 percent, the lowest since April 30.

Fed Outlook

In the bond market’s view, the chance of a Federal Reserve interest-rate increase this year is practically a toss-up after the Bank of Japan’s surprise policy move. Derivatives traders see about 62 percent odds that the Fed will raise its benchmark by the end of this year. Policy makers in December projected four quarter-point increases in 2016.

San Francisco Fed President John Williams said last week he sees the need for a little bit more accommodation than he did in September, and now expects the pace of policy tightening to be a “smidgen” slower than before. Fed Vice Chairman Stanley Fischer is scheduled to speak later Monday in New York.

The central bank’s preferred gauge of inflation climbed to an annual 0.6 percent in December from 0.4 percent the previous month, Commerce Department data showed Monday, in line with the median forecast of economists surveyed by Bloomberg.

A separate report showed manufacturing in the U.S. shrank in January for a fourth consecutive month as businesses cut staffing plans.

“Fischer speaking this evening will be critical in that regard if he decides to say anything regarding the March meeting,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank in London. “Until then, there’s little reason for anyone to extend themselves at the moment, given the large uncertainty.”

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