Treasury yields drop below 4%
Yields on the benchmark 10 year US Treasury notes fell below 4 per cent for the first time in three months after weak economic data and month- end buying pushed prices higher.
Yields on the 30- year long bond dropped to 4.331 per cent, their lowest in almost two years. The 10-year yield dipped to 3.992 per cent. Earlier, yields on 10-year German Bunds had fallen to new all-time lows at 3.260 per cent.
The moves coincided with comments by Stephen Roach, Morgan Stanley’s chief economist, who said he expected a China-led slowdown in Asia to encourage further bond buying.
“I now suspect bond yields will stay low for the foreseeable future and might even drift lower,” he said. “At some point over the next year, yields on 10-year government [bonds] could test 3.5 per cent in the US, 2.5 per cent in Europe and 1 per cent in Japan.”
Ten-year JGBs yesterday yielded 1.24 per cent, just off a 14-month low earlier last month at 1.21 per cent.
Mr Roach’s remarks followed a recent series of more bullish comments about the outlook for bonds. Bill Gross, head of Pimco, the world’s largest bond fund, recently forecast 10-year Treasury yields would remain between 3 per cent and 4.5 per cent over the next three-five years as a result of high demand.
Treasuries traders yesterday emphasised that the recent fall in yields was not necessarily a bet on the economy, but more the result of limited supply of longer-dated bonds.
“Maybe the true bubble in the world is in bond markets,” said one trader in New York. “What is dangerous is that everyone’s now looking for the bogeyman that bond yields are hinting at – thinking that yields are doing this for a fundamental reason – and that down the road we’ll find out what the bad stuff is.”
Usually, bond prices fall as yields track interest rate rises, but this time, longer-dated bond yields have fallen even as shorter-dated yields have risen.
Bond yields in the UK are actually inverted, meaning it costs more to borrow short-term than it does in the longer term. Australian and New Zealand bonds are showing the same pattern. Usually, an inverted yield curve implies the market is pricing in a recession in years to come. The spread, or difference, between yields on two- and 10-year Treasuries, has narrowed from 2.2 percentage points a year ago to 0.41 of a percentage point yesterday.
Yields on the 30- year long bond dropped to 4.331 per cent, their lowest in almost two years. The 10-year yield dipped to 3.992 per cent. Earlier, yields on 10-year German Bunds had fallen to new all-time lows at 3.260 per cent.
The moves coincided with comments by Stephen Roach, Morgan Stanley’s chief economist, who said he expected a China-led slowdown in Asia to encourage further bond buying.
“I now suspect bond yields will stay low for the foreseeable future and might even drift lower,” he said. “At some point over the next year, yields on 10-year government [bonds] could test 3.5 per cent in the US, 2.5 per cent in Europe and 1 per cent in Japan.”
Ten-year JGBs yesterday yielded 1.24 per cent, just off a 14-month low earlier last month at 1.21 per cent.
Mr Roach’s remarks followed a recent series of more bullish comments about the outlook for bonds. Bill Gross, head of Pimco, the world’s largest bond fund, recently forecast 10-year Treasury yields would remain between 3 per cent and 4.5 per cent over the next three-five years as a result of high demand.
Treasuries traders yesterday emphasised that the recent fall in yields was not necessarily a bet on the economy, but more the result of limited supply of longer-dated bonds.
“Maybe the true bubble in the world is in bond markets,” said one trader in New York. “What is dangerous is that everyone’s now looking for the bogeyman that bond yields are hinting at – thinking that yields are doing this for a fundamental reason – and that down the road we’ll find out what the bad stuff is.”
Usually, bond prices fall as yields track interest rate rises, but this time, longer-dated bond yields have fallen even as shorter-dated yields have risen.
Bond yields in the UK are actually inverted, meaning it costs more to borrow short-term than it does in the longer term. Australian and New Zealand bonds are showing the same pattern. Usually, an inverted yield curve implies the market is pricing in a recession in years to come. The spread, or difference, between yields on two- and 10-year Treasuries, has narrowed from 2.2 percentage points a year ago to 0.41 of a percentage point yesterday.
June 1, 2005
Posted in: Uncategorized
Leave a Reply