Treasury yields drop to nearly 3-week low ahead of presidential debates

Treasury prices rose Monday, pushing yields to their lowest level in nearly three weeks, on growing risk aversion as investors anxiously awaited the U.S. presidential debate between Democratic nominee Hillary Clinton and her Republican rival Donald Trump.

The moves came after last week yields fell by the most in two months, after Federal Reserve officials left interest rates unchanged, supporting buying appetite for government debt.

Overnight on Monday, dovish comments by Bank of Japan Governor Haruhiko Kuroda ,who said he could push rates deeper into negative territory if needed to boost growth and inflation, helped drive global interest rates lower.

Meanwhile, sharp losses for German bank Deutsche Bank DB, -6.89% DBK, -7.06% which earlier sank to an all-time low following reports that Chancellor Angela Merkel wouldn’t support state aid for the bank, also sparked risk aversion in global markets, fueling demand for government debt.

Yields rebounded somewhat in New York morning trade, after a report showed that sales of newly constructed homes in the U.S. slipped less than expected in August, pointing to some stabilization in the housing market.

On balance, the yield on the benchmark 10-year Treasury note TMUBMUSD10Y, -1.65% lost 2.4 basis points to 1.591%, its lowest level since Sept. 8, according to Tradeweb. Treasury yields fall when prices rise and vice versa. One basis point is equal to one-hundredth of a percentage point.

The yield on the two-year Treasury note TMUBMUSD02Y, -3.25% which is most sensitive to rate changes, fell 1.6 basis points to 0.742%. And the yield on the 30-year Treasury bond TMUBMUSD30Y, -0.99% which is the most sensitive to long-term growth and inflation expectations, slid 1.5 basis points to 2.324%, also marking a nearly three-week low.

In Europe, the yield on Germany’s 10-year bond TMBMKDE-10Y, -36.00% known as the bund, lost 3.7 basis points to negative 0.114%, according to Tradeweb.

After receiving policy updates by the Fed and the BOJ last week, Wall Street is now turning its attention to the presidential debates, particularly as “the direction of the polls point to increasing uncertainty,” said Peter Cardillo, chief market economist at First Standard Financial Company.

The ensuing investor anxiety, Cardillo said, along with recent mixed economic data that point to sluggish U.S. economic growth, fuel the market’s risk aversion and demand for assets perceived as safe, mainly government debt.

Investors were also focusing on the auction of $ 26 billion in 2-year Treasury notes, scheduled for Monday afternoon. Treasury auctions can have a strong impact on secondary-market trading. If an auction sees strong demand, leading the notes to be sold at a higher price and lower yield than anticipated, yields can fall in the secondary market as well.

Analysts were expecting strong demand at the auction, as the “overall bullish tone in Treasurys” along with “last week’s updated Fed forecasts” which pushed future interest-rate projections lower, were expected to make newly issued short-term debt more attractive, said Ian Lyngen, an independent interest-rate strategist, in an email.


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