BOND REPORT: Treasury Yields End At Nearly 3-week Low Ahead Of Presidential Debates

By Ellie Ismailidou, MarketWatch

BOJ's dovish comments push global rates lower

Treasury prices rose Monday, pushing yields to their lowest levels in nearly three weeks, on growing risk-aversion as investors anxiously awaited the U.S. presidential debate between Democratic nominee Hillary Clinton and her Republican rival Donald Trump.

The moves came after yields fell last week by the most in two months (http://www.marketwatch.com/story/treasury-yields-flat-as-investors-gauge-hawkish-fed-talk-against-weak-data-2016-09-23), after Federal Reserve officials left interest rates unchanged, supporting buying appetite for government debt.

Overnight on Monday, dovish comments by Bank of Japan Gov. Haruhiko Kuroda , (http://www.marketwatch.com/story/bojs-kuroda-ready-to-cut-rates-deeper-into-negative-territory-2016-09-26)who said he could push rates deeper into negative territory if needed to boost growth and inflation, helped drive global interest rates lower.

Meanwhile, sharp losses for Germany's Deutsche Bank (DBK.XE)(DBK.XE), which earlier sank to an all-time low following reports that Chancellor Angela Merkel wouldn't support state aid for the bank, also sparked risk-aversion in global markets, fueling demand for government debt.

Yields rebounded somewhat in New York morning trade, after a report showed that sales of newly constructed homes in the U.S. (http://www.marketwatch.com/story/new-home-sales-stay-stronger-than-expected-as-demand-buoys-a-firmer-pace-of-building-2016-09-26)slipped less than expected in August, pointing to some stabilization in the housing market.

On balance, the yield on the benchmark 10-year Treasury note lost 2.6 basis points to 1.589%, its lowest level since Sept. 7. Treasury yields fall when prices rise and vice versa. One basis point is equal to one-hundredth of a percentage point.

The yield on the two-year Treasury note , which is most sensitive to rate changes, fell 1.2 basis points to 0.742%. And the yield on the 30-year Treasury bond , which is the most sensitive to long-term growth and inflation expectations, slid 1.1 basis points to 2.326%, also marking a nearly three-week low.

In Europe, the yield on Germany's 10-year bond known as the bund, lost 3.7 basis points to negative 0.114%, according to Tradeweb.

After receiving policy updates by the Fed and the BOJ last week, Wall Street is now turning its attention to the presidential debates, particularly as "the direction of the polls point to increasing uncertainty," said Peter Cardillo, chief market economist at First Standard Financial Company.

The ensuing investor anxiety, Cardillo said, along with recent mixed economic data that point to sluggish U.S. economic growth, fuel the market's risk-aversion and demand for assets perceived as safe, mainly government debt.

Also adding to the falling-yield trend was an auction of $26 billion in two-year Treasury notes, which on Monday afternoon saw strong demand, leading the notes to be sold at a lower yield of 0.750% than the originally offered 0.755%, according to data from Jefferies.

Treasury auctions can have a strong impact on secondary-market trading. If an auction sees strong demand, leading the notes to be sold at a higher price and lower yield than anticipated, yields can fall in the secondary market as well.

The strong demand at a yield of 0.75% "simply doesn't make sense with the Fed potentially back in play," said Thomas Simons, senior money markets economist at Jefferies, in an email. Analysts expect the Fed to hike rates by the end of the year.

According to Simons, a potential explanation of the strong results despite the low yield is that "real money demand that is price-agnostic."

(END) Dow Jones Newswires

September 26, 2016 16:15 ET (20:15 GMT)

Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Aug 2024 to Sep 2024