Fuss Sees ‘Fear Factor’ Abroad as Haven Demand Boosts Treasuries

  • Safety sought as Clinton, Trump deadlocked before debate
  • Tumbling stocks on banking concerns add to appetite for bonds

Treasuries resumed their rally, pushing benchmark yields to the lowest in more than two weeks, as investors retreated to safer assets globally before Monday’s U.S. presidential debate.

Benchmark 10-year securities were boosted as a Bloomberg Politics poll had Hillary Clinton and Donald Trump deadlocked before the event. Havens were also in demand as stocks tumbled around the world, with shares of Deutsche Bank AG -- Germany’s largest lender -- falling to a record, sparking renewed concerns over the health of Europe’s financial sector.

The advance extends a rally that saw longer-dated Treasuries post the biggest weekly gain since July last week, after central-bank decisions in the U.S. and Japan fueled expectations that monetary policy in the world’s major economies will remain loose. Appetite from buyers abroad boosted demand to the highest since 2014 at an auction of inflation-linked Treasuries on Sept. 22.

"There’s a fear factor in the market that’s very sizable and it’s in the market overseas," Dan Fuss, vice chairman of Loomis Sayles & Co. in Boston, said in an interview with Bloomberg Television. "It’s people hedging as to what on God’s earth is going to come out of this U.S. election. That’s the concern." Fuss’s $14.9 billion Loomis Sayles Bond Fund has beaten almost 90 percent of its peers this year.

Benchmark 10-year Treasury yields fell three basis points, or 0.03 percentage point, to 1.58 percent as of 5 p.m. in New York, the lowest closing level since Sept. 7, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 was 99 7/32.

Rate Outlook

U.S. government debt has gained 5 percent this year, according to Bloomberg index data, as concerns ranging from stagnant global growth to fallout from the Brexit vote pushed investors into havens and prompted the Fed to delay raising interest rates. 

Most investors expect the central bank will wait at least until after the Nov. 8 U.S. election to act, according to futures data compiled by Bloomberg. Only about 17 percent of traders forecast officials will hike at their Nov. 2 meeting, and about half see an increase by year-end, based on the assumption the Fed’s target trades at the middle of the new range.

A gauge of demand fell at Monday’s $26 billion auction of two-year notes, the coupon maturity most sensitive to Fed policy expectations. It was the first of three U.S. fixed-rate note sales this week totaling $88 billion.

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