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Global bond-markets rally Friday, sending yields lower, as a raft of weaker-than-expected eurozone data drew investors into the perceived safety of government paper.
German 10-year bond yields dived below zero while European shares and the euro fell on Friday after grim data from the continent fueled fears of a global economic slowdown following this week's dovish turn by the U.S. Federal Reserve. Yields on Germany's 10-year government bond turned negative for the first time since October 2016 after data showed manufacturing contracted for a third straight month in March, compounding worries that trade disputes are exacerbating a slowdown in Europe's biggest economy. Equities in Paris tumbled 0.8 percent while London's FTSE dropped 1 percent.
Core euro zone bond yields struggled to find uplift from the 2-1/2 year lows hit on Thursday after the Fed became the second major central bank to adopt a more dovish stance, signalling that central banks are looking to keep monetary conditions easy. Bond yields fell across developed markets after the U.S. Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an end. Ten-year U.S. Treasury yields held close to 2.5 percent in early trade on Friday, while Japanese government bond (JGB) yields plunged to their lowest since November 2016.
At around 4:30 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.5279 percent, while the yield on the 30-year Treasury bond was also lower at 2.9588 percent. There are no major Treasury bond auctions scheduled on Friday. At around 4:20 a.m. ET, the yield on the benchmark 10-year Treasury note , which moves inversely to price, was lower at around 2.5297 percent, while the yield on the 30-year Treasury bond was also lower at 2.9627 percent.
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Treasury yields bounce off intraday lows Thursday, keeping their weekly decline intact as bond investors reel from a one-two punch of robust economic data and a stock-market surge.
The spread between the three-month Treasury bill yield and the 10-year note yield shrank to its narrowest level since August 2007 on Thursday in the wake of the Federal Reserve's decision to cease tightening monetary policy as the American economy shows signs of contraction. The three-month and 10-year spread is the Fed's preferred measure of the Treasury yield curve as it shows the strongest historical correlation between curve inversion and forthcoming recession. The last time the three-month to 10-year yield curve inverted - when the spread fell below zero basis points - was in August 2007, shortly before the low in spreads trumped on Thursday.
With the U.S. 10-year yield dipping below 2.50 percent, the gap between the 3-month and 10-year Treasury yields on Thursday shrank to its narrowest point since 2007. The Fed’s revised outlook was a dead weight on that curve, pushing it from more than 15 basis points early on Wednesday to within four basis points of zero. An inverted curve is widely considered to be an accurate predictor of an economic slump, and BMO Capital Markets is among those forecasting that the measure is likely to drop below zero.
Just a few months ago, rising rates were bearing down on everyone from home buyers to stock investors after the Federal Reserve put through seven quarter-point increases in 2017 and 2018. This year, the Fed has changed course. In January, it opened the door to a "patient" approach to further rate increases.
Even for a bond market bracing for an accommodative Federal Reserve, policy makers’ moves on Wednesday were a stunner, raising the specter of recession.
The central bank’s main aim appears to be to do no harm to an economy that Fed Chairman Jerome Powell observed was “in a good place.”
Treasurys on Wednesday rallies, pushing yields lower, after a more dovish policy update than expected from the Federal Reserve, which downgraded economic growth forecasts and said it would end its balance sheet runoff in September.
A battle is being waged on Wall Street between those betting on mounting signs of slowing economic growth here and abroad and those who see U.S. markets positioned to shake off a multitude of anxieties and accelerate higher.
Columbia Threadneedle’s Al-Hussainy says the Fed may use its March meting to make far-reaching pronouncements on how the balance sheet runoff might take shape.
Treasury yields rose slightly Tuesday as a Federal Reserve meeting kicked off, which could show policy makers scaling back rate-hike projections and outlining a plan to end a runoff of its asset portfolio, amid growing skepticism that rates will be hiked further in 2019. The 10-year Treasury note yield (BX:TMUBMUSD10Y) was up 0.9 basis point to 2.614% The 2-year note yield (BX:TMUBMUSD02Y) rose 1.2 basis points to 2.471%, while the 30-year bond yield (BX:TMUBMUSD30Y) picked up 1.3 basis points to 3.027%. The Fed’s policy statement will be closely scrutinized for remarks on the economic outlook.
A Bank of America Merrill Lynch chart shows Wall Street investors are the most bullish on Treasurys in 10 years
U.S. Treasury yields followed German government bonds higher on Tuesday morning, as the U.S. Federal Reserve's interest rate policy-setting meeting began. The mood among German investors improved more than expected in March, a survey by the ZEW research institute showed on Tuesday, as a potential delay to Britain's departure from the European Union buoyed sentiment. British lawmakers voted overwhelmingly last Thursday to seek a delay in Britain's exit from the European Union.
My Bloomberg Opinion colleague Brian Chappatta notes that the all-important 10-year Treasury note’s yield has fluctuated within a 22-basis-point range since early January, narrower than any calendar-year quarter since 1965. On top of that, expected implied volatility as tracked by Bank of America Corp.’s Move Index just fell to its lowest level since 1988. What this implies is that the bond market has reasserted control over the Fed. In other words, the central bank wouldn’t dare send a hawkish surprise and upset markets unless the bond market was prepared for such an outcome, which it isn’t, as evidenced by the drop in volatility and yields.
Tony Dwyer, Chief Market Strategist and Sr. Managing Director of Canaccordia Genuity talks market strategy with Yahoo Finance's Julie Hyman and Adam Shapiro
Paul Schatz, President and Chief Investment Officer of Heritage Capital, says “the market has priced in what the Fed should have been doing all along” and adds that growth is decelerating but “is just right for right now.” Yahoo Finance's Alexis Christoforous speaks to him, Scott Gamm and Brian Sozzi.
Talley Leger, OppenheimerFunds Investment Strategist, says markets are looking for a continued expression of dovishness from the FOMC, which could decide the direction of U.S. equities. Yahoo Finance’s Alexis Christoforous speaks to him, Jared Blikre and Scott Gamm.