Treasury 10-Year Notes Gain as Global Equities Enter Bear Market

  • Tumbling stocks, oil fuel 3.8% surge for U.S. bonds this year
  • U.S. sells 30-year bonds at lowest yield in more than a year

Treasuries advanced, with 10-year yields touching the lowest in more than three years, as global stocks entered a bear market and investors sought the safest assets.

Benchmark 10-year notes rose for the sixth day as commodities fell and investors dumped equities worldwide. Concern that central banks have lost the power to shield a global economy from slowing growth and anemic inflation has lifted Treasuries to a 3.8 percent gain in 2016. Bonds erased most gains in the afternoon after the U.S. auctioned $15 billion of 30-year debt at the lowest yield at a sale in more than a year.

"The Treasury market is simply a residual market of what’s going on in other asset classes, primarily equities and oil, and for that reason it’s not trading off its own fundamentals," Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

Federal Reserve Chair Janet Yellen added fuel to this year’s bond rally by suggesting on Wednesday that the central bank may delay raising interest rates as recent market volatility has tightened financial conditions. She concluded a two-day appearance before U.S. lawmakers Thursday in Washington.

The benchmark Treasury 10-year yield dropped one basis point, or 0.01 percentage point, to 1.66 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. It fell as low as 1.53 percent, the lowest since August 2012, which was one month after it declined to a record 1.379 percent. The price of the 1.625 percent security due in February 2026 was 99 22/32.

Central Banks

The futures market is assigning an 11 percent probability to a Fed interest-rate increase by the end of this year. The calculation is based on the assumption that the effective fed funds rate will trade at the middle of the new target range after the next increase.

The Fed lifted rates for the first time in almost a decade in December, when policy makers signaled they expected four more increases this year. Officials are aiming to tighten U.S. policy amid signs of domestic economic progress even as central banks in Europe and Japan have boosted stimulus.

“The fear is the central banks are running out of bullets,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.

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