U.S. government securities gained for a second day along with their euro-area counterparts after policy makers said the ECB is preparing multiple measures against low inflation. Bond purchases under quantitative easing may be possible, they said. American producer-price inflation rose more than forecast before the Treasury announces tomorrow the amount it will sell next week in 10-year inflation-indexed securities.
“It’s the anticipation of QE in Europe that’s driving the bus here,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “There are other signs that the market is looking at, other than the data.”
The U.S 10-year yield dropped five basis points, or 0.05 percentage point, to 2.56 percent at 9:36 a.m. in New York, according to Bloomberg Bond Trader prices. It was the lowest level since Nov. 1. The price of the 2.5 percent security maturing in May 2024 rose 13/32, or $4.06 per $1,000 face amount, to 99 14/32.
Thirty-year bond yields dropped fell six basis points to 3.39 percent, while two-year note yields traded little changed at 0.37 percent.
Treasuries returned 2.7 percent this year through yesterday, versus 4.9 percent for U.S. investment-grade corporate debt, based on Bloomberg indexes. The Standard & Poor’s 500 Index of shares gained 3.4 percent including reinvested dividends, according to data compiled by Bloomberg.
The yield difference between two- and 10-year notes, or yield curve, shrank for a second day. The spread narrowed by four basis points to 219 basis points. A flattening yield curve usually means investors are betting on slower economic growth.
Fed Chair Janet Yellen will speak tomorrow after saying last week the world’s biggest economy still requires a strong dose of stimulus.
German and French 10-year yields fell to the lowest levels in a year after ECB Executive Board member Peter Praet told Germany’s Die Zeit newspaper the central bank is preparing a range of policy measures to boost growth. Ten-year bund yields fell to as low as 1.38 percent, and 10-year French yields touched 1.82 percent.
The ECB would only embark on Fed-style government-bond purchases “if the economy and the inflation in the euro area develop significantly worse than we expect,” Praet said, according to the interview in Die Zeit.
The ECB is working “at high speed” on a range of policy instruments, Executive Board member Yves Mersch said. While the purchase of government bonds by the ECB in the primary market is prohibited by treaty, “our mandate nevertheless includes the possibility of buying, under the appropriate conditions, government bonds on the secondary market” if necessary, Mersch said in a speech in Berlin.
U.S. Treasury yields remained lower even after the Labor Department reported that wholesale prices in the U.S. climbed more than forecast, with a 0.6 percent increase in the producer price index. Over the past 12 months, costs climbed 2.1 percent. The forecast was for a gain of 0.2 percent from 0.5 percent the previous month, economists in a Bloomberg survey forecast before the report.
The consumer-price index rose 2 percent in April from a year earlier, versus 1.5 percent in March, according to the median forecast of economists in a Bloomberg survey before a Labor Department report tomorrow. The gauge hasn’t risen past 2 percent since October 2012. Slower inflation helps preserve the value of the fixed payments from bonds.