Treasuries rose, pushing 10-year note yields to almost a four-month low, as a decline in stocks and commodities fueled demand for the safest assets.
Benchmark yields extended the drop after Bundesbank President Jens Weidman said the European Central Bank may cut interest rates if the economy warrants it. Treasuries have outperformed equities for the first time in five months on bets the Federal Reserve will maintain asset purchases and concern the global economy is slowing. A report tomorrow is forecast to show an index of leading indicators rose at a slower pace in March than the prior month. The U.S. will sell $18 billion of inflation-linked debt tomorrow.
“The volatility in non-rate products -- stocks and commodities -- has forced some money into Treasuries,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc. “There’s a lot of uncertainty going on. The next leg is to lower yields. Tens may go to 1.60”%.
The U.S. 10-year yield fell two basis points, or 0.02 percentage point, to 1.70% at 10:23 a.m. New York time, according to Bloomberg Bond Trader prices. The 2% note due in February 2023 rose 7/32 or $1.25 per $1,000 face amount, to 102 23/32. The yield dropped to 1.67% on April 15, the lowest level since Dec. 12.
European stocks sank for a fourth day, led by commodity producers, and the Standard & Poor’s 500 Index slid 1.2% as industrial metals declined. Copper fell 3% while gold rose for a second day after tumbling 9.1% on April 15.
U.S. government securities returned 0.8% in April through yesterday, according to Bank of America Merrill Lynch index data, exceeding the gain in the S&P 500 Index for the first time since November.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index fell to 51.9 basis points yesterday, the lowest level since Dec. 11. The gauge, which tracks the outlook for swings in U.S. government debt rates, has averaged 63.7 basis points in the past year.
The spread between yields on 10-year Treasuries and similar-maturity TIPS, a gauge of inflation expectations known as the break-even rate, shrank to as little as 2.38 percentage points yesterday, the narrowest since Nov. 28.
New York Fed President William C. Dudley and his Chicago counterpart Charles Evans stressed the need for the central bank to maintain record stimulus yesterday.
This month’s payrolls report “underscores the need to wait and see how the economy develops before declaring victory,” Dudley said yesterday in a speech in Staten Island. “I don’t think we should be complacent” because “unemployment is unacceptably high,” he said.
Applications for jobless benefits rose to 350,000 last week from 346,000 in the previous period, according to a Bloomberg News survey of economists before tomorrow’s Labor Department report. Employers added 88,000 jobs in March, the least in nine months, the department said on April 5.
The index of U.S. leading indicators is forecast to rise 0.1% in March, compared with 0.5% in February, according to another survey before the figure is released tomorrow.
The Fed will release its Beige Book business survey today. Last month’s report, which is based on responses from 12 regional central banks, showed the U.S. economy grew at a modest to moderate pace. Fed policy makers have maintained purchases of government and mortgage debt at $85 billion a month in a bid to spur growth and boost employment.
“Tapering the Fed’s asset purchases seems to be out of the window, especially after Dudley’s comments,” said Marc Ostwald, a London-based rates strategist at Monument Securities Ltd.
The central bank is today scheduled to buy as much as $1.75 billion of securities due from February 2036 to February 2043, according to the New York Fed’s website.
The government will sell five-year Treasury Inflation Protected Securities tomorrow, following data yesterday that showed consumer prices unexpectedly declined 0.2% in March.