Mario Draghi, president of the European Central Bank, had previously said that a... Read More
Treasuries remained higher as a report showed the U.S. economy grew more than initially estimated in the second quarter. U.S. 30-year rates fell to a 15-month low on rising Ukraine tensions. Bank of America Merrill Lynch’s Global Broad Market Sovereign Plus Index rose to within half a percent of its all-time high yesterday based on prices, according to data starting in 1996.
“Global yields are falling due to the ECB’s policy stance and geopolitical tension, which affects risk sentiment,” said Richard Kelly, a senior strategist at
Toronto-Dominion Bank in London. “Bond purchases by the ECB are just a matter of when and not if, unless the euro region’s economy miraculously recovers. We expect the ECB to cut rates next week.”
The U.S. 10-year yield dropped two basis points, or 0.02 percentage point, to 2.34 percent at 8:33 a.m. New York time, Bloomberg Bond Trader data show. It has fallen from 3.03 percent at the end of 2013. The 2.375 percent note due August 2024 rose 5/32, or $1.56 per $1,000 face amount, to 100 10/32. Thirty-year yields dropped to as low as 3.07 percent, the lowest since May 2013.
ECB ‘Ready’
As yields in Europe plunge, investors are snapping up government securities from the U.S. to Australia in search of higher interest payments. Bonds in the index returned 5.6 percent in 2014, headed for the biggest gain since 2011.Europe’s bond yields tumbled to records yesterday. ECB President Mario Draghi said in Jackson Hole, Wyoming, last week that policy makers will use “all the available instruments needed to ensure price stability” and are “ready to adjust our policy stance further.”
Germany’s 10-year yields added to declines today, dropping to an all-time low 0.866 percent. The rate on similar-maturity French bonds slid to 1.223 percent.
“With what we see as secular global economic stagnation, we don’t expect bond yields to rise significantly even in countries like the U.S. or the U.K. where rates are expected to go up,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris.
Japan’s 10-year yield dropped to 0.485 percent today, the least since April 2013, while Australia’s (GACGB10) declined to 3.28 percent.
Economists estimate a report tomorrow will show euro-area inflation slowed in August to the least in almost five years.
Inflation Gauge
Consumer prices in the region increased 0.3 percent from a year ago, moderating from a 0.4 percent gain in July, according to the median estimate in a Bloomberg News survey before the European Union’s statistics office releases the data. Disinflation is a slowing of inflation.Ukrainian President Petro Poroshenko called an emergency security meeting to defend against what he called a Russian “invasion” after separatists gained ground in intensified fighting in eastern regions.
Pro-Russian rebels widened their attacks on government forces, taking several towns outside the strongholds of Donetsk and Luhansk, including near the Sea of Azov, opening a new front and supply channel, said Anton Herashchenko, an adviser to Ukrainian Interior Minister Arsen Avakov. The U.S. said Russia may be directing attacks as the fighting spread to previously peaceful areas, falling short of calling it an invasion.
BlackRock Hired
The ECB has hired BlackRock Inc., the world’s biggest money manager, to advise on developing a program to buy asset-backed securities. BlackRock Solutions, a unit of the New York-based company, will provide advice on the design and implementation of a potential ABS-purchase plan, an ECB spokesman said in response to e-mailed questions. The ECB next meets on Sept. 4.Demand has been increasing at government debt auctions.
A U.S. five-year sale yesterday drew the strongest bidding in 13 months from a class of investors that includes foreign central banks. The group, indirect bidders, bought 52.7 percent of the notes, the most since July 2013, Treasury data compiled by Bloomberg show.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.81, versus an average of 2.73 for the 10 sales before yesterday’s.
The U.S. is scheduled to sell $29 billion of seven-year securities today.
In Australia, a sale of A$500 million ($467 million) in three-year debt this month drew bids for seven times the amount offered, the most since 2004, government data show.
Bill Sale
At a sale of five-month bills today, two bidders were aggressive enough to purchase all A$500 million of the auction between them.Central banks will keep interest rates low, even those that are raising borrowing costs, said Ben Emons, a portfolio manager at Pacific Investment Management Co. Pimco, based in Newport Beach, California, runs the world’s biggest bond fund.
The Federal Reserve will begin raising its benchmark from near zero next year, futures contracts indicate.
“Whether you look at the United States or U.K. or Japan or Europe or Canada or New Zealand or Australia, all these central banks are facing headwinds,” Emons said yesterday on Bloomberg Radio. “All of them have an interest-rate cycle that is likely going to be shallower, less pronounced, than in the previous cycle,” he said.
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