Bonds pared gains after a report that Russia wants to de- escalate the crisis in eastern Ukraine. U.S. yields touched the lowest levels earlier in more than a year, while those on European securities dropped to records. Global stock declines and outflows from junk-rated corporate bonds accelerated the safety bid. The conflicts in the Middle East and Ukraine are increasing risks to growth, European Central Bank President Mario Draghi said yesterday.
“People are hiding in Treasuries,” said Charles Comiskey, New York-based head of Treasury trading at Bank of Nova Scotia in New York, one of 22 primary dealers that trade directly with the Federal Reserve. “It’s a huge flight to quality. There’s a lot of confusion in the world.”
The U.S. 10-year yield fell as much as six basis points, or 0.06 percentage point, to 2.35 percent, the lowest since June 20, 2013, before trading at 2.41 percent at 8:46 a.m. New York time, according to Bloomberg Bond Trader data. The 2.5 percent note due in May 2024 rose 2/32, or 63 cents per $1,000 face amount, to 100 26/32.
Treasury 30-year bond yields reached 3.18 percent, the least since June 6, 2013, before trading at 3.22 percent.
Sovereign securities pared gains after RIA Novosti said Russia is making efforts to de-escalate the Ukrainian conflict. It cited Russian Security Council head Nikolai Patrushev.
Australia’s 10-year yield declined as much as 14 basis points to 3.28 percent, also the least since June 2013. German 10-year yields dropped as much as four basis points to a record- low 1.023 percent before trading little changed. German two-year rates fell to as low as minus 0.005 percent, the least since May 23, 2013.
A negative yield means investors who hold a security until it matures will receive less than they paid to buy it.
“Heightened geopolitical risks, as well as developments in emerging-market economies and global financial markets, may have the potential to affect economic conditions negatively,” Draghi said after the ECB’s monthly monetary policy meeting when officials decided to keep borrowing costs at record lows.
Yields on 10-year euro-area sovereign debt from Finland to France dropped to records. U.K. 10-year gilt yields fell to 2.40 percent, the lowest since August 2013. Japan’s 10-year rate slid to the least since April 2013.
The MSCI All-Country World Index of shares fell 0.3 percent and touched the lowest since May 21.
“There’s a flight to quality,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 22 primary dealers that trade with the central bank. “Tension is rising globally. Since the start of the month equity markets are off sharply and bonds are rallying. That should continue.”
Investors pulled a record $7.1 billion from funds that buy U.S. junk bonds in the week ended Aug. 6, accelerating a flight that started last month and bringing net outflows to $9.75 billion this year, according to data provider Lipper.
U.S. 10-year notes yielded 43 basis points more than the S&P 500 Index dividend yield, the smallest premium in more than a year.
Obama said he authorized air strikes against militants in Iraq if they threatened U.S. personnel, in a speech made at the White House yesterday.
“The market jumped” after the announcement, said Ali Jalai, a bond trader in Singapore at Scotiabank, a unit of Bank of Nova Scotia, another primary dealer. “This causes more uncertainty.”
Rockets were fired between Israel and Gaza after a three- day cease-fire expired early today. Russia banned an array of food goods from the U.S., Canada, Australia and Europe, striking back at U.S. and European Union sanctions for President Vladimir Putin’s support of rebel forces in Ukraine.
U.S. 30-year yields dropped as much as five basis points to 3.18 percent, the lowest level since June 6, 2013.