Japanese Prime Minister Shinzo Abe ordered a new round of fiscal stimulus spending as evidence mounted Japan’s corporate sector is floundering due to weak demand, but did not give details on the size of the package.
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Trading on Wednesday may also be impacted by reaction to a report on import and exports prices as well as the Federal Reserve’s Beige Book.
The yield on the 10-year Treasury note set a record low Friday despite an encouraging employment report, underscoring the growing influence of global factors in setting benchmark USA interest rates. “The dealers had to step in and take more risk than I think they wanted”, said Gennadiy Goldberg, an interest rate strategist at TD Securities in NY. This raised expectations for a rate hike in 2016. Yields rise when prices fall and a basis point is equal to one hundredth of a percentage point.
The bid-to-cover ratio on Monday’s auction, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 2.69, the lowest since the July 2009 sale.
“The recent demand for Treasuries seems to be largely driven by foreign demand for longer-term bonds, in a yield grab given how low rates are globally”, said Jonathan Rick, an interest-rate derivatives strategist in NY at Credit Agricole CIB.
Tumbling bond yields globally, which have turned negative in countries from Japan to Germany, is making longer-dated US bonds more attractive.
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The Treasury is also selling $20 billion of 10-year notes Tuesday and $12 billion of 30-year bonds the following day. The notes hit record low yields of 1.321 percent last Wednesday on concerns about slowing global growth, which were accelerated by Britain’s vote to leave the European Union.
