Treasury Yields Rise From 10-Month Low as Oil Halts Two-Day Drop

  • SocGen retains its long position in U.S. debt securities
  • U.S. employment gains slowed in January from December

Are Bond Fees Outweighing Yields?

U.S. Treasuries fell, lifting 10-year yields from their lowest level since April, as oil prices halted a decline, diminishing the appeal of fixed-income assets.

Treasury yields rose after a private data report showed U.S. job gains slowed in January from the previous month. A separate report will show growth in non-manufacturing activity ebbed, according to the median forecasts of economists in a Bloomberg survey.

Declines in the securities may not last long, according to Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in London. A deal to cut oil production isn’t close to being reached and investors are wary of what more easing from the Bank of Japan and the European Central Bank can achieve to boost growth, he said. This will force other central banks to delay raising interest rates, Chaigneau added.

There may be “some near-term consolidation, especially if risk markets turn a bit calmer around Chinese New Year,” he said. “But I don’t see a trigger for a sustained reversal. We’ve retained our small-duration long all along for” U.S., U.K., Japan and euro-zone bonds. Chaigneau said he sees no “strong reasons to drop it just yet.”

A long position is a bet an asset will appreciate. The week-long Chinese New Year holiday starts Feb. 7.

10-Month Low

The 10-year note yield rose three basis points, or 0.03 percentage point, to 1.87 percent as of 8:27 a.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent security due in November 2025 fell 9/32, or $2.81 per $1,000 face amount, to 103 10/32. The yield earlier sank to 1.83 percent, the lowest since April 6.

West Texas Intermediate crude futures climbed 1.7 percent to $30.38 a barrel, after tumbling 11 percent in the previous two days.

Treasury benchmark yields were within half a percentage point of an all-time low as interest rates have plunged around the world, raising investor concern that the move foreshadows a global economic slowdown. The BOJ is following the ECB in using negative interest rates in trying to fuel inflation, and traders are cutting their forecasts for how much the Federal Reserve will raise U.S. rates.

“There is concern about global growth,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management, South Korea’s biggest private money manager, with $113 billion in assets. “That’s causing demand for U.S. Treasuries and other sovereign-debt markets.” While the expansion is slowing, the U.S. economy is growing and isn’t in a recession, he said.

Treasury yields reached a record-low 1.379 percent in July 2012. The yield on a Bank of America Corp. index of sovereign bonds slipped to 1.36 percent this week, extending its decline to levels not seen in a year.

Crude oil declined to a 12-year low in January, and the MSCI All Country World Index of shares has fallen about 8 percent this year. The odds of the Fed following its December rate increase with another in 2016 are less than 50 percent, futures contracts indicate.

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