BLBG: Bond Surge Worldwide Drives Index Yield to One-Year Low
A worldwide bond-market surge pushed yields to the lowest levels in a year on growing evidence central banks can keep stimulating economic growth without igniting inflation.
Treasury 10-year notes gained for a fourth day, following a rally yesterday that drove the yield on the Bloomberg Global Developed Sovereign Bond Index to 1.28 percent, the least since May 2013. Australia’s (GACGB10) 10-year yield dropped to an 11-month low, Japan’s slid to the least in 12 months, while European bond yields were close to the lowest since the formation of the region’s shared currency.
The U.S. economy contracted 1 percent in the first quarter, the Commerce Department said. Fixed-income securities rallied yesterday in the wake of a report showing German unemployment unexpectedly rose in May.
“You have central banks saying they’ll do everything in their power to keep rates low,” said Cathy Roy, the chief investment officer for fixed-income at Calvert Investments in Bethesda, Maryland, which oversees more than $13 billion in bonds. “This is an environment we’re going to be in for a long time.”
The Bloomberg Global Developed Sovereign Bond index (BGSV) has climbed 4.3 percent this year through yesterday, while Treasuries returned 3.6 percent, based on Bloomberg indexes. Every one of the 26 bond markets from Hungary to Japan tracked by Bloomberg and the European Federation of Financial Analysts Societies has gained during the past month.
Treasury Yields
The benchmark U.S. 10-year yield slipped one basis point, or 0.01 percentage point, to 2.43 percent at 8:31 a.m. New York time after falling to 2.42 percent, the least since July 3, according to Bloomberg Bond Trader data. The yield declined seven basis points yesterday. The 2.5 percent note maturing in May 2024 rose 4/32, or $1.25 per $1,000 face amount, to 100 19/32.
Australia’s 10-year yield lost as much as nine basis points to 3.61 percent. Japan’s dropped to as low as 0.56 percent. Singapore’s fell to 2.18 percent, the lowest since October.
Evidence that weakening labor markets will constrain demand and inflation has caused investors to pour into government bonds. That’s confounded economist predictions for a second year of losses as signs earlier this year that U.S. economic growth is gaining traction prompted the Federal Reserve to taper its $85 billion-a-month bond-buying program.
‘Not Scared’
“The U.S. Treasury market has not been scared off by the Fed’s taper,” Steven Barrow, the head of Group-of-10 research at Standard Bank Plc. in London, wrote today in an e-mailed report. “The Fed might slow the rate of purchase but if it still holds a huge stock of bonds, as it will for many years, yields will be lower than if the Fed held no Treasuries.”
The Treasury is scheduled to sell $29 billion of seven-year notes today, after yields at a five-year auction yesterday dropped to the lowest since November.
Euro-area government bonds have advanced since European Central Bank President Mario Draghi said on May 8 that the Governing Council was “comfortable” taking measures to boost inflation in the region. Consumer-price increases in the 18-nation currency bloc have been less than half the central bank’s goal of below 2 percent since October.
An estimate due June 3 will show the rate was at 0.7 percent for a second month in May, according to the median forecast of economists surveyed by Bloomberg.
Inflation Gauge
The Fed’s preferred gauge of inflation, an index of personal consumption expenditures, has remained below its 2 percent target for almost two years. The measure increased 1.1 percent in March, the latest figure available, from a year earlier.
The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.13 percent yesterday, matching the least since the formation of the currency bloc in 1999, according to Bank of America Merrill Lynch indexes.
Greece’s government securities returned 26 percent this year through yesterday and Portugal’s increased 15 percent, the best-performing sovereign debt markets tracked by Bloomberg World Bond Indexes. Treasuries (BUSY) gained 3.6 percent and German bonds earned 4.4 percent.
“It looks like Europe may step in to replace U.S. quantitative easing, so yields in global bond markets fell,” said Stone Chang, a Taipei-based fixed-income fund manager at Prudential Plc who oversees the equivalent of $110 million.
U.S. government securities maturing in 10 years and longer yielded 92 basis points more than non-U.S. sovereign debt, the lowest level since Sept. 25, Bank of America Merrill Lynch indexes showed.
The International Monetary Fund last month predicted global growth of 3.6 percent in 2014, revising down its January estimate of 3.7 percent. Next year, the expansion will accelerate to 3.9 percent, unchanged from the prior forecast.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Keith Jenkins
