Treasury Futures Hold Gain as Slowdown Drives Safety Bid
Treasury 10-year futures contracts held gains from yesterday on speculation a U.S. report today will show service industries, the largest part of the economy, grew at a slower pace in April.
Yields are tumbling in high-rated bond markets as investors seek the safest assets amid cooling economic growth. Ten-year Treasury rates slid as low as 1.90 percent yesterday, approaching the all-time low of 1.67 percent set in September. The yield on similar-maturity debt in Germany fell to 1.60 percent yesterday, the lowest ever, while the Australian rate dropped to a record 3.53 percent on May 1.
“We’re in a new environment where yields will be lower in the high-quality assets,” said Bin Gao, head of rates research in Hong Kong for Asia and the Pacific at Bank of America Merrill Lynch. “We’re running out of high-quality bonds.”
Ten-year futures contracts for June delivery were unchanged at 132 6/32 as of 9:11 a.m. in Singapore. They rose 7/32, or $2.19 per $1,000 face amount, yesterday.
Financial markets are closed in Japan today and tomorrow for holidays.
Germany and Australia both have AAA debt rankings from Moody’s Investors Service, Fitch Ratings and Standard & Poor’s. The U.S. has the top grades from Moody’s and Fitch and is ranked one step lower at AA+ by S&P.
The Institute for Supply Management’s index of non- manufacturing industries in the U.S. probably slowed to a four- month low of 55.3 in April from 56 in March, according to the median projection of 74 economists surveyed by Bloomberg News. Services make up about 90 percent of the economy. Another report today is likely to show first-time claims for jobless benefits declined last week, according to a separate survey of economists.
A euro-region factory gauge based on a survey of purchasing managers slipped to a 34-month low, London-based Markit Economics said yesterday. Euro-region unemployment rose to a 15- year high, the European Union statistics office reported yesterday.
The purchases are part of the U.S. central bank’s effort to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to hold down borrowing costs.
The Fed purchased $2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 to June 2011 as part of its efforts to spur the U.S. economy. It has also pledged to keep its target for overnight bank lending at almost zero until at least late 2014.