U.S. Long-Bond Yield Nears All-Time Low as Global Anxiety Grows
(Bloomberg) -- The rate on 30-year Treasury bonds approached an all-time low and a closely monitored section of the U.S. yield curve hurtled closer to inversion as investors sought shelter amid a fraught geopolitical backdrop.
The yield on the long bond tumbled as much as 14 basis points on Monday to close in on its record-low of 2.0882% from July 2016. The 10-year note fell 10 basis points to 1.65%, and at one point was just 5 basis points more than two-year notes. That’s the flattest that part of the curve has been since 2007.
“The general risk-off theme is driving the move, which is actually flattening the curve rather than steepening it,” said Gennadiy Goldberg, a senior U.S. rates strategist at TD Securities. “This suggests that the market is being driven less by Federal Reserve expectations and more by a flight to quality or global uncertainty.”
The rush for cover came as global trade concerns rumbled on, with investors also bidding up haven assets including the Japanese yen and gold. The unexpected defeat of Argentine President Mauricio Macri in a primary vote sparked a selloff of the nation’s assets, and the Monday cancellation of flights in Hong Kong due to protests added to a broader sense of unease.
Asia wasn’t spared. Australia’s 10-year bond yield opened at a fresh all-time low on Tuesday, while Japan’s 30-year yield dropped to 0.2050%, the lowest since July 2016.
Fed funds futures showed traders betting on more easing from the U.S. central bank, with around 66 basis points of cuts priced in for the rest of this year.
“There’s a lot of concern that negative rates are going to move onto U.S. shores, and that’s driving demand for duration from fixed-income investors who are looking to insulate themselves,” said Mark Heppenstall, chief investment officer for Penn Mutual Asset Management, which has $27 billion under management.
The rapid plunge in Treasury yields has also put the 10-year note’s record low in sight. After ending July at 2.01%, the yield on those benchmark securities has fallen almost 40 basis points in just eight trading days. They yielded almost twice as much in October.
The pace of the move means 1.318% -- the all-time low set three years ago -- is at risk of being broken this month or in September, according to Seaport Global’s Tom di Galoma. UBS also sees a new low ahead, slashing its year-end target to 1.25% from 2%.
The catalyst for the drop, di Galoma says, will be a continued fall in rates elsewhere in the world, along with a U.S. stock sell-off that prompts investors to scoop up even more Treasuries.
“The plunge in global rates, especially in Europe, is having a profound effect on U.S. interest rates,” said di Galoma, the firm’s managing director of government trading and strategy. “At this point, we see most G-20 economies growing at a tepid pace and that worries us. We see U.S. 10-year rates collapsing toward 1%-1.25% if growth or inflation in the U.S. do not pick up soon.”
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