MW: Treasury yields reach new lows on flight to safety
Bond market is feeling like a rock star, says Nomura strategists
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices rose Friday, pushing short-term yields to a new record lows, adding to weekly gains after Thursday's surprisingly weak data that called into question the ability of the U.S. -- and therefore the world -- to sustain a recovery.
Bonds gained as investors sought out safer assets while global and U.S. equities fell and the euro sold off against the dollar.
Yields on 2-year notes (UST2YR 0.49, 0.00, 0.00%) earlier dipped to 0.45%, the lowest level on record. They lately stood at 0.49%. Bond prices move inversely to their yields.
Yields on 10-year notes (UST10Y 2.57, -0.01, -0.27%) slipped 1 basis point to 2.57%. A basis point is 0.01%.
The benchmark security's yields earlier touched 2.53%, the lowest since March 2009.
Thirty-year bond yields (UST30Y 3.63, -0.03, -0.71%) fell 3 basis points to 3.63%. They hit a 16-month low of 3.60% earlier.
"The world is in a flight-to-quality mode," said Andrew Brenner, head of emerging markets at Guggenheim Securities. "Sentiment is about as bad as we've seen it in a while."
No U.S. economic reports are scheduled for Friday's session.
In recent action, the Dow Jones Industrial Average (DJIA 10,165, -106.03, -1.03%) lost 1% and the dollar rose to its highest level against the euro (EURUSD 1.2673, -0.0146, -1.1389%) in more than a month. Read about dollar, euro.
In one bit of news that weighed on confidence, a European Central Bank policy maker said the institution will keep emergency lending measures in place until next year to ensure banks don't fall prey again to liquidity shortfalls. Read about ECB remarks.
On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, said a new round of quantitative easing, also known as QE, in the form of Treasury purchases may be warranted if inflation continues to decline. Read about Fed's Bullard.
"With U.S. and ECB officials pushing for additional stimulus and QE if needed, the green light remains for the underlying bid despite the extreme run," said John Spinello, bond strategist at Jefferies & Co.
This week, 10-year yields have fallen from 2.69%, the fourth weekly decline.
Two-year yields have slipped from 0.54% last Friday. They are on pace for the fifth straight monthly drop.
Yields on 30-year bonds have declined from 3.77% a week ago. The decline so far in August, from 3.90%, would be the biggest monthly drop since December 2008.
Treasury bonds are gaining "rock star" status, but gains may be limited before next week's auctions of $109 billion in government notes and inflation-indexed securities, said George Goncalves, a bond strategist at Nomura.
"Bonds are feeling so good but are they looking so bad?" he said. "For now, everyone is getting all up in the bond club so we wouldn't fight the momentum, but it is pushing up against our limits."
