Tags: Treasury Bond | Yield | Oil | Inflation

Treasury Bond Yield Drops to Record as Oil Rout Damps Inflation

Wednesday, 14 January 2015 09:56 AM

Treasurys rose, pushing 30-year yields toward a record low and sending 10-year yields to the least since May 2013, as falling commodity prices cut the outlook for inflation.

U.S. long bonds have surged amid a 2015 rally in bonds around the world, returning 5.6 percent, Bank of America Merrill Lynch data show. The securities are on track for their biggest monthly gain in a year. The U.S. is scheduled to sell $13 billion of 30-year debt. Plunging oil prices suggest inflation will hold in check, and copper joined in the commodities rout.

“There are good money flows into the U.S. Treasury market because of the decline in oil prices,” said Wontark Doh, the head of overseas fixed-income investment in Seoul at Samsung Asset Management, which has $121.9 billion in assets.

The U.S. 30-year yield fell four basis points to 2.46 percent as of 6:45 a.m. in London, according to Bloomberg Bond Trader data. The 3 percent bond due November 2044 rose 3/4, or $7.50 per $1,000 face amount, to 111 1/4. The yield is approaching the record low of 2.44 percent set in July 2012.

Benchmark 10-year yields declined four basis points to 1.86 percent.

A worldwide bond rally in 2015 sent the effective yield on Bank of America’s global index of sovereign debt to a record-low 1.2 percent Tuesday.

Japan’s 10-year bond yield fell to an unprecedented 0.25 percent. Australia’s extended its decline to an all-time low of 2.57 percent. A basis point is 0.01 percentage point.

Oil Slumps

Crude oil has slumped about 15 percent in 2015, after falling 46 percent in 2014. Copper plunged to a 5 1/2-year low. The Bloomberg Commodity Index extended its decline to the lowest levels since 2002.

Yields are too low for Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which manages the equivalent of $3.7 billion. The Federal Reserve will push borrowing costs higher as the U.S. economy improves, he said.

“This is not the right time to bet on U.S. Treasurys,” Kim said. “The U.S. Fed will increase the interest rates in the middle of next year.” Kim said he may consider buying then.

Policy makers will boost borrowing costs in about 8 1/2 months, based on data from Morgan Stanley.

The Fed is scheduled to issue its Beige Book business survey today. Government data will show retail sales and the cost of imported goods declined in December, based on Bloomberg surveys of economists.

World Bank

The World Bank cut its forecast for global economic growth this year to 3 percent from a projection of 3.4 percent in June.

The Washington-based lender upgraded its forecast for U.S. growth to 3.2 percent from 3 percent.

At the last 30-year auction in December, investors bids for 2.76 times the amount of debt for sale, the highest level since January 2013.

Thirty-year bonds are among the most sensitive securities to inflation because of their long maturity, driving the best performance in the Treasury market.

Ten-year notes have returned 2.6 percent and five-year securities have gained 1.5 percent this month.

The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, dropped to 1.52 percentage points yesterday, the lowest level since August 2010.

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Treasury 30-year bonds yields fell to a record-low 2.39 percent as the collapse in oil and commodity prices fueled speculation the global economy may fall into a deflationary spiral and stifle growth.
Treasury Bond, Yield, Oil, Inflation
Wednesday, 14 January 2015 09:56 AM
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