Treasurys Gain as Markets Struggle
U.S. Treasury prices rose Friday as selling pressure hit global stock markets, setting up the 10-year yield for its longest streak of weekly declines since January.
In midday New York trading, benchmark 10-year notes gained 5/32 in price to yield 2.309%, according to Tradeweb. The yield fell from 2.45% at the start of the week, marking a fourth straight weekly decline, the longest since the turn of the year.
The 30-year bond rose 11/32 to yield 3.046%. Bond yields decline when prices rise.
Friday's gains came as global stocks sold off on worries about economic growth, which followed a sharp decline in U.S. equities on Thursday.
Despite U.S. economic data showing improvement, deflationary pressures plaguing the eurozone, disappointing data out of Germany and a plethora of geopolitical risks around the world have kept buyers around in the haven bond market.
"The global slowdown in Asia and especially Europe has been an enormous story this week," said Tom di Galoma, head of rates and credit trading at ED&F Capital Markets. "It's foreign money fleeting Europe which is driving the Treasury bid."
Indeed, with shorter-dated German debt offering owners negative rates, while its 10-year bund yields 0.89%, even historically low yields on U.S. Treasurys look relatively appealing.
A research note by Bank of America Merrill Lynch out Friday found that 1.3 trillion euros of eurozone government debt trade at a negative yield, representing about 30% of the market. This could mean as much as 1 trillion euros of money is looking for better-yielding investments, the firm writes.
Still, considering the magnitude of the selloff in global stocks, bond traders say the lift that that's providing Treasurys has been limited.
Bonds face uncertainties of their own--namely when the Federal Reserve will become confident enough about the U.S. economy to tighten policy.
"Unless we go into a deflation spiral, I don't see yields going much lower," said Gary Pollack, head of fixed-income trading at Deutsche Bank's private wealth-management unit, pointing to expectations that the Fed will begin raising rates in the middle of 2015.
Minutes released on Wednesday from the Fed's latest policy meeting suggested the central bank is willing to exercise patience, yet some say persistent improvement in the U.S. labor market means a rate increase is on the horizon.
Federal Reserve Bank of Philadelphia President Charles Plosser is among the most vocal advocates of tightening policy sooner rather than later. In a speech Friday, he said "I fear that the public has come to expect too much from its central bank and too much from monetary policy, in particular."
For now, the Fed's patience and a lack of inflation in the U.S. and globally have allowed bond yields to stay around historic lows in a year when many expected rates to rise. At one point this week, the 10-year yield fell to a 16-month low of 2.277%.
The year's unexpected bond-price rally has compelled many bond analysts to lower their yield forecasts. Bank of America Merrill Lynch became the latest to do so Friday, cutting its year-end call on the 10-year yield to 2.75% from 3.1%.
Mr. Pollack says he sees the 10-year yield rising to 2.5% to 2.65% at year-end, but not as far as 3% as global growth concerns loom over investors.