Treasury Yields Fall to Lowest Since 2013 as Global Bonds Surge

  • German 10-year yields approach zero, touching record-low 0.01%
  • Global bond index sees best start to year since at least 1997

How Low Can Global Bond Yields Fall?

Treasury 10-year note yields fell to the lowest level since 2013 as global bond yields plunged to record lows, sending investors to U.S. government securities in search of better returns.

Benchmark U.S. debt gained as traders sought safety amid global growth concerns and before the U.K.’s June 23 vote on whether to remain in the European Union. German 10-year yields touched an all-time low 0.01 percent, while gains by Japanese and Swiss securities with similar maturities drove their already-negative yields to new lows. The U.S. yield curve flattened and break-even inflation rates declined as traders bet on a slow pace of economic growth.

Bonds are off to their best start to a year since at least 1997, according to a broad Bank of America Corp. global gauge of investment-grade debt that has gained 4.6 percent since the end of December. They rallied most recently after the weakest U.S. payrolls data in almost six years was reported June 3, damping expectations the Federal Reserve will raise interest rates in the next few months. The U.S. benchmark note yields more than all but seven developed countries, according to data compiled by Bloomberg.

“Everyone is hiding in Treasuries,” said Tom di Galoma, managing director of government trading and strategy at investment bank Seaport Global Holdings LLC in New York. Anticipation of the Fed policy meeting next week was helping to push yields lower, he said, “but Brexit is far more important.”

The 10-year note yield fell five basis points, or 0.05 percentage point, to 1.64 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data, the lowest on a closing basis since May 2013. The 1.625 percent security due in May 2026 rose 13/32, or $4.06 per $1,000 face amount, to 99 27/32.

Brexit Poll

The U.S. two-year note yield fell four basis points to 0.73 percent, a one-month low. It reached the lowest level of the day after a poll published Friday showed the campaign for Britain to leave the EU took a 10 percentage-point lead. The survey of 2,000 people by ORB for the Independent newspaper found 55 percent in favor of a so-called Brexit, up 4 points since a previous poll in April, with 45 percent for “Remain,” down 4 points.

“The environment is fundamentally supportive of these low yields, and there is nothing in sight, at least in the short term, that could trigger a trend reversal,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “The labor-market report was one thing which has driven the Treasury market and has supported other markets. If you look in the euro zone, you have Brexit risks that have risen recently, and that is also creating safe-haven flows.”

Hedge funds and other speculators boosted net bullish bets on Treasury bond futures to the highest on record in the week ended June 7, according to Commodity Futures Trading Commission data released Friday. Net longs totaled 90,748 contracts, up from 64,302 a week earlier.

The gap between two- and 30-year note yields, a gauge of the yield curve, flattened to 172 basis points. The 10-year break-even rate, a bond market measure of the expected annual inflation rate over the next decade, fell for a second day to 1.56 percent.

The futures-implied probability of a June Fed rate increase has fallen to zero from 22 percent a day before the Labor Department released the May payrolls numbers, according to data based on fed fund futures compiled by Bloomberg. The chance of a rate increase by year-end has fallen to 50 percent from 76 percent during that time.

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