Treasuries Rally Drives 10-Year Yield to Lowest Since February

  • Asset manager re-balancing to start quarter seen at work
  • U.K. yields also tumble, reaching lowest levels since Oct.

Treasuries rallied, driving benchmark 10-year yields to the lowest since February, amid weakness in equities and signs asset managers were re-balancing at the start of the second quarter.

The 10-year U.S. yield touched about 2.32 percent, the lowest since Feb. 27. The 10-year break-even rate dropped below 1.97 percentage points as crude prices slipped. The yield curve from five to 30 years pared its steepening, winding up at about 110 basis points.

Morgan Stanley strategists said that remarks by New York Fed President William Dudley last week that the central bank might begin shrinking its balance sheet this year or in 2018, possibly pausing rate increases in the process, led them to “double down on steepeners.” BMO Capital Markets said they see an “asymmetry of risks” going into the April 7 payrolls report, which could cause yields to fall more dramatically than they would rise.

  • U.S. 30-year yield falls six basis points; two-year yields decline three basis points
  • U.K. and German bonds, along with Treasuries, see among the biggest gains in developed-market debt; they had rallied following reports of blast in St. Petersburg subway; euro-zone bonds firmed after ECB’s Praet pushed back on rate-hike expectations; U.K. 10-year yields plunged to the lowest since Oct.
  • UST curve faces steepening pressure from prospect that Trump administration will proceed with plans for ultra-long issuance, Morgan Stanley said
  • Other potential catalysts for steepening include the March employment report and UST auction calendar; JPMorgan last week recommended 7s30s steepener ahead of the next 30-year bond auction on April 12

— With assistance by Edward Bolingbroke

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