Bond Report: 10-year yield falls to 18-month low on deflation worries, GDP

NEW YORK (MarketWatch) — The 10-year yield fell to its lowest level since May 2013 Friday as month-end buying, worries about deflation in Europe and a weaker-than-expected reading on fourth-quarter gross domestic product growth drove investors into the safety of the bond market.

The yield on the 10-year Treasury TMUBMUSD10Y, -4.23%  was down six basis points to 1.693%, according to Tradeweb, while the yield on the 30-year Treasury hit an all-time low, down 7.5 basis points to 2.243%.

A provisional reading on the eurozone’s rate of inflation in January slipped further into negative territory early Friday, driving investors into European and U.S. debt. The market’s worries about deflation and lagging growth were further stoked by a weak reading on U.S. gross domestic product growth.

U.S. GDP grew by 2.6% in the fourth quarter, down from 5% in the third quarter, according to a preliminary government estimate released by the Commerce Department. Economists surveyed by MarketWatch had predicted 3.2% growth.

The yield on the German 10-year bund TMBMKDE-10Y, -7.42%  was 1.5 basis points lower to 0.341%.

Treasury yields have been pushing lower since the new year began, as negative yields in Europe and worries about the global economy sinking into deflation increase the appeal of U.S. debt as a haven for investors.

“There’s really no reason to sell bonds unless you think the jobs number next week is going to be very robust,” said Tom di Galoma, head of rates and credit trading at ED & F Man Capital Markets.

Investors moved money out of European, Asian and U.S. stocks and into the bond market after the disappointing data. The Europe Stoxx 600 SPX, -0.27%   was down 0.37% to 367.42, and U.S. stocks futures pointed to a lower open for equity markets in the U.S.

Here’s what Treasury investors were watching Friday.

  • S&P 500 SPX, -0.27%   and the Dow Jones Industrial Average DJIA, -0.21%  were down early in the trading after weak GDP data.
  • Gold futures declined after weaker-than-expected U.S. gross domestic product data.
  • The U.S. dollar rose to a fresh record high against the ruble Friday, after the Russian central bank cut its benchmark rate by 2% to 15%. Russia had hiked rates six times over the past year, and the market had expected to hold rates steady for the immediate future.
  • Nymex-traded crude oil futures for March delivery were slightly higher, with a barrel going for $ 44.64, up 0.27% from its Thursday close.


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