Treasuries advanced along with the bonds of other highly rated nations on concern central banks need to take more action to sustain faltering global growth, spurring demand for the safest assets.
U.S. 10-year yields dropped to within five basis points of a record low, while bonds also rallied in Germany, the U.K., Japan and Australia. Longer-maturity bonds led gains in Treasuries after the Federal Reserve disappointed investors yesterday by failing to signal further monetary easing. The $13 billion in 30-year debt the U.S. is scheduled to sell yielded a record low in pre-auction trading.
“There’s the expectation of the Federal Reserve doing more,” said Thomas Simons, a government-debt economist in New York at Jefferies Group Inc., one of 21 primary dealers that trades with the Fed. “The easing bias is still intact. It’s a desire for safe, dollar-denominated assets, driven partly by the Fed and by what’s going on in Europe.”
The 10-year Treasury yield fell three basis points, or 0.03 percentage point, to 1.48 percent at 12:25 p.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent security due in May 2022 rose 10/32, or $3.13 per $1,000 face amount, to 102 14/32. The yield dropped to a record 1.4387 percent on June 1.
Thirty-year yields fell three basis points to 2.58 percent, approaching the all-time low 2.5089 percent also set on June 1.
Applications for jobless benefits decreased last week 26,000 in the week ended July 7 to 350,000, the fewest since March 2008, Labor Department figures showed today. Economists forecast 372,000 claims, according to the median estimate in a Bloomberg News survey.
“The bid in the market is due to a little bit of concern about a global slowdown,” said Sean Murphy, a trader at primary dealer Societe Generale in New York. “It seems to be gripping the market. There’s some concern that maybe the same demand for the 10-year may show up for the 30-year, so guys are a bit reluctant to set up for the market today.”
The 30-year Treasuries being sold today yielded 2.59 percent in pre-auction trading, versus 2.72 percent at the prior sale June 14. Investors bid for 2.4 times the amount of debt offered, the least since November at the monthly auctions.
The U.S. sold $21 billion of 10-year notes at an all-time low rate of 1.459 percent yesterday as the auction attracted record-high demand from a group of investors that include pension funds and insurance companies.
Thirty-year bonds have returned 7.8 percent this year, compared with 5 percent for 10-year notes and 0.1 percent for two-year debt, according to indexes compiled by Bank of America Merrill Lynch.
A few Fed policy makers said the central bank will probably need to take more action “to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,” according to minutes released yesterday after the Federal Open Market Committee’s June 19-20 meeting. The central bank’s next policy decision is due on Aug. 1.
Treasury trading volume reported yesterday by ICAP Plc, the largest inter-dealer broker of U.S. government debt climbed to $263.16 billion, the most since June 29. Trading averaged $242 billion this year.
Volatility closed yesterday at 63.8 basis points, according to Bank of America Merrill Lynch’s MOVE index. It dropped to a five-year low of 56.7 basis points on May 7, and has averaged 76 basis points this year, touching a 2012 high of 95.4 basis points on June 15. It reached a record high of 264.6 basis points in October 2008 as the financial crisis intensified. The index measures price swings based on options.
The Bank of Korea cut borrowing costs for the first time in more than three years today, lowering its seven-day repurchase rate to 3 percent from 3.25 percent. Brazil reduced its benchmark for an eighth meeting to 8 percent yesterday. The Bank of Japan (8301) bolstered its asset-purchase fund while cutting a credit-loan facility by the same amount.
The ECB cut interest rates by 25 basis points to 0.75 percent on July 5 and the Bank of England expanded its bond- buying program the same day.
Global economic growth will slow to 2.26 percent this year from 2.9 percent in 2011, a Bloomberg News survey showed.
Japan’s 10-year bond yield dropped two basis points to 0.765 percent, the lowest since 2003. German two-year yields declined to a record low and were below zero for the fifth straight day.
Australia’s 10-year yield dropped as much as 11 basis points to 2.87 percent, while similar-maturity French rates declined eight basis points to 2.24 percent. U.K. 10-year yields fell five basis points to 1.51 percent.
The U.K. sold 3.5 billion pounds ($5.41 billion) of 10-year gilts today at a record low yield of 1.719 percent.
The term premium, a model created by the Fed that includes expectations for interest rates, growth and inflation, showed Treasuries are the most expensive ever. The gauge fell to a record negative 0.9617 percent on July 10. It was negative 0.9496 percent today.
The Fed bought $2.3 trillion of securities in two rounds of so-called quantitative easing from 2008 to 2011 to support the economy. In September it embarked on a plan to replace $400 billion of short-maturity Treasuries in its portfolio with longer-term debt to cap borrowing costs. It expanded the effort on June 20 by $267 billion and extended it until year-end.
The Fed sold $7.93 billion of Treasuries today due from July 2013 to January 2014 as part of its Operation Twist program. The central bank announced on June 20 it would extended the program is replacing $667 billion of shorter-term securities in its holdings with longer-term bonds through this month to keep borrowing costs down.
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