Treasuries Gain as Deutsche Bank Contagion Fear Fuels Haven Bid

Treasuries rallied, reversing earlier losses, as traders sought haven assets on reports that some Deutsche Bank AG clients are pairing back their exposure to the beleaguered German lender.

Treasury 10-year yields fell one basis point, or 0.01 percentage point, to 1.56 percent as of 2:43 p.m in New York, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 climbed to 99 13/32.

Traders bid up traditional quality assets including Treasuries, gold and the yen after a Bloomberg News report said some funds that clear derivatives trades with Deutsche Bank had withdrawn some excess cash and positions held at the bank. Investors fled financial securities amid concern the Frankfurt-based bank’s woes could spread to counterparties, damping Europe’s fragile economic recovery.

“If you take a step back, Deutsche Bank’s solvency doesn’t seem to be a critical risk yet,” said Ed Al-Hussainy, senior global interest-rate analyst at Columbia Threadneedle Investments in Minneapolis. But “if it does start to happen, it happens pretty quickly, and I’m cognizant of that.”

Treasuries have gained over 5 percent this year as investors have sought havens amid concerns ranging from the consequences of the U.K.’s Brexit vote to stagnant global growth. The Federal Reserve has held off on raising interest rates this year for the same reasons, electing to stand pat once again at its Sept. 21 meeting.

There’s "a flight to quality when equities are going down led by bank stocks," said Timothy High, director of U.S. rates strategy at BNP Paribas in New York, one of 23 primary dealers that trade with the Fed. “There are a lot of rumors out there and people are just playing it safe.”

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