BLBG: Treasuries Rise on Flight to Safety as Two-Year Yield Falls to Record Low
Treasuries advanced, pushing two- year yields to a record low and that on the 10-year security below 3 percent for the first time since April 2009, as a decline in stocks boosted demand for the safest assets.
Government securities headed for their best quarter since the 2008 financial crisis as European governments’ struggles to rein in debt increased demand for the relative safety of U.S. securities. Pacific Investment Management Co., which runs the world’s biggest bond fund, said in a report on its website that inflation will stay low for the rest of 2010.
“There’s risk aversion, and nervousness about the euro- land debt crisis isn’t going away,” said Jesper Fischer- Nielsen, a senior fixed-income strategist in Copenhagen at Danske Bank A/S. Investors have also pushed “any speculation about the Federal Reserve tightening back to a more distant future,” supporting demand for government debt, he said.
The yield on the two-year note fell two basis points to 0.61 percent as of 7:39 a.m. in London, according to data compiled by Bloomberg. The 0.625 percent security due June 2012 rose 1/32, or 31 cents per $1,000 face amount, to 100 1/32.
The yield dropped as low as 0.5935 percent. The prior record was 0.6044 percent set Dec. 17, 2008, after the Fed cut its target for overnight bank lending to a range of zero to 0.25 percent. It has held the rate there since.
Ten-year yields dropped four basis points to 2.99 percent, after touching 2.97 percent, the least since April 29, 2009.
The MSCI Asia Pacific Index fell to a two-week low amid concern that the pace of China’s recovery might stall. Stock market index futures in Europe and the U.S. also fell.
‘Look Attractive’
U.S. government securities have returned 4.4 percent this quarter, according to Bank of America Merrill Lynch indexes.
They’re still the place to be, said Marvin Barth, chief investment strategist at Tennenbaum Capital Partners LLC, a private investment company is Santa Monica, California.
“That’s something that continues to look attractive given the weak growth environment,” said Tennenbaum, who has also worked as an economist for the Treasury Department and the Fed, according to the company’s website.
A Bank of America index of company bonds yields 3.14 percentage points more than Treasuries, widening from 2.37 percentage points in April as investors sought U.S. government securities over company debt.
German bunds advanced 4 percent this quarter, U.K. gilts rallied 4.2 percent, and Japanese bonds gained 1.9 percent, the indexes show. The MSCI World Index of shares declined almost 10 percent in the period.
Bond yields surged in Greece, Portugal and Spain, driving the euro to a four-year low against the dollar this month and cutting investor demand for higher-yielding securities.
Markets Freeze
“People are shifting from riskier assets to U.S. Treasuries,” said Kei Katayama, who helps oversee the equivalent of $38.3 billion in non-yen debt as leader of the foreign fixed-income group in Tokyo at Daiwa SB Investments Ltd. in Tokyo. “Sovereign risk is still the problem.”
The last time Treasuries rallied as much was when they gained 9 percent in the last three months of 2008 as credit markets froze around the world following the collapse of Lehman Brothers Holdings Inc. in September that year.
The Conference Board’s index of consumer confidence fell to 62.5 in June from 63.3 the prior month, a Bloomberg News survey of economists showed before today’s report. U.S. employment figures later this week will show the nation lost 115,000 jobs in June, economists said.
Japanese government reports showed the jobless rate rose and households cut spending. Ten-year bond yields fell to 1.12 percent, a level not seen since August 2003.
Australian 10-year yields dropped 10 basis points to 5.15 percent, the lowest level this year.
‘Gathering Momentum’
Treasuries also rallied after a report yesterday indicated inflation was contained last month.
“Inflation is unlikely to accelerate in the near term,” Mihir Worah, an investor at Newport Beach, California-based Pimco said on the company’s website. “As we move into 2011, and the latter half of 2011, we are likely to see signs inflation is gathering momentum.”
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed to 1.94 percentage points from this year’s high of 2.49 percentage points in January.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
