Treasuries Rally on Weak China Data as JPMorgan Asset Sees Value

  • U.S. debt gains after yields reach highest in four months
  • Chinese exports drop most in seven months, spurring haven bid

JPMorgan's Michele: Fed Not Sure What to Look at

Treasuries joined a global rally in government bonds as weak Chinese economic data prompted investors to seek the relative safety of fixed-income assets.

U.S. 10-year yields dropped from a four-month high, while those on similar-maturity German bunds retreated from the highest in a month. Chinese exports tumbled 10 percent in September from a year earlier, the biggest decline in seven months, the government reported. This helped weaken the yuan, which touched a six-year low against the dollar.

Some Federal Reserve officials saw “important downside risks from abroad” as a reason for holding off on raising interest rates, according to minutes from the central bank’s September policy meeting released Wednesday. A slowdown in China, the world’s second-largest economy, would reinforce the need for central banks to maintain an accommodative monetary policy stance, which helps support bonds.

“It’s not a robust economy, the kind you would expect the Fed to lean more aggressively into,” Bob Michele, global chief investment officer at JPMorgan Asset Management, which oversees $1.7 trillion, said on Bloomberg Television. “Until other central banks dial down how much money they’re printing, every backup is going to be a buying opportunity for us -- I don’t want to fight that.”

The benchmark U.S. 10-year note yield fell three basis points, or 0.03 percentage point, to 1.74 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. It closed Wednesday at the highest level since June. The price of the 1.5 percent security due in August 2026 rose to 97 26/32.

The market-implied probability that the Fed will increase rates by its December meeting is about 65 percent, the lowest this week, according to fed fund futures data. The calculation is based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the next increase.

Yields declined on government debt in all but three of the 25 developed markets tracked by Bloomberg.

Bonds in peripheral nations such as Spain and Italy are also being driven by speculation that the European Central Bank will tweak its quantitative-easing program. ECB policy makers are scheduled to meet next week.

The U.S. Treasury sold $12 billion of 30-year debt Thursday, drawing the greatest demand since July for the maturity.

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