Treasuries Hold Gain as Plunge in Oil Drives Demand for Havens

  • Two- and 30-year yield spread narrows as inflation risk wanes
  • Speculators cut bearish bets on Treasuries from 5-month high

Treasuries held gains from Friday as investors favored haven assets, amid a plunge in crude prices after oil producers failed to limit supplies.

The yield difference between two- and 30-year Treasuries narrowed to the least in almost three weeks as investors demanded lower yield premiums for holding longer-maturity bonds after International Monetary Fund Managing Director Christine Lagarde said global finance chiefs remain concerned about the economy around the world. Oil tumbled by the most in two months after output talks on Sunday among the world’s biggest producers ended without an agreement on limiting supply. 

Hedge funds and other large speculators reduced bets on Treasuries declines last week, in the biggest bullish shift since February.

“The start into the week is being dominated by the outcome of the oil-producer meeting,” said David Schnautz, a London-based rates strategist at Commerzbank AG. “Lower inflation expectations on the back of lower oil prices and cross-market relation between oil and stocks are supportive of Treasuries.”

Benchmark 10-year Treasury note yields were little changed at 1.74 percent as of 7:30 a.m. in New York. The price of the 1.625 percent security due in February 2026 was 98 30/32. The yield earlier had fallen as much as three basis points, or 0.03 percentage point. It reached 1.68 percent on April 7, the lowest since Feb. 25, according to Bloomberg Bond Trader data.

Yield Spread

The yield difference between two- and 30-year debt was little changed at 182 basis points after earlier shrinking about two basis points to 179.95 basis points, the lowest since March 29. The narrower spread suggested investors demand less to hold longer-dated maturities to compensate for potential risk of inflation.

Net short positions in 10-year futures contracts dropped to 24,364 as of April 12, from a five-month high of 117,305 net positions a week earlier, based on the latest data from the U.S. Commodity Futures Trading Commission.

Crude oil futures traded on the New York Mercantile Exchange lost as much as 6.8 percent Monday, dipping to $37.61 per barrel.

“There was an equal level of concern, and a collective endeavor to identify the solution and the responses to the global economic situation,” Lagarde said Saturday. She summed up the IMF stance as one of “alert,” not “alarm.”

Federal Reserve policy makers have cited global risks in their decisions not to raise interest rates further.

Futures suggest about 14 percent probability that the Fed will tighten policy at its June meeting, down from about 75 percent odds on Jan. 1.

Before it's here, it's on the Bloomberg Terminal.