The yield on the 30-year Treasury bond (U.S.: US30Y) was slightly lower, at 2.738 percent, after closing at 2.752 percent. St. Louis Fed President James Bullard told CNBC on Friday that he disagrees with markets’ outlook on global growth and that he still supports a rate increase.
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The yield on the US 10-year benchmark treasury bond fell three basis points to 2.09% reflecting concerns about lower oil prices and a slowing Chinese economy.
Anxiety has been growing over the global economy amid lower commodities prices, plunging emerging-market assets and a selloff in both stocks and bonds sold by lower-rated U.S. companies, known as junk bonds.
Spurring the appetite for bonds, an index of global stocks sank to the lowest since January as China’s unexpected yuan devaluation last week spurred concern the world’s second-largest economy is losing momentum.
In oil markets, this week saw U.S. crude hit a new six-and-a-half-year low.
“The Fed is in a tough spot”, said John Bellows, portfolio manager at Western Asset Management Co., which has $452.5 billion in assets under management.
The yield on German 10-year bunds slid one basis point to 0.65 percent, while that on similar-maturity Italian bonds fell four basis points to 1.77 percent. “They are good to diversify your portfolio and hedge against downside risks in growth and inflation”. Earlier this week, the odds were near 50%. “What people are trying to figure out is whether this volatility will actually stay the Fed’s hand”, said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
Two-year Treasury yields rose at the beginning of July and have held their levels ever since, despite the decline in longer-term yields. Inflation chips away bonds’ fixed return over time and it is a main threat to long-term bonds.
This is the result of the overarching flight-to-safety theme, that emerged in the beginning of July out of the global rout in oil and commodity prices, along with the slowdown in China’s economy.
Futures show a 32 percent chance the Fed will raise its benchmark rate at its September 16-17 meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
The Treasury yield curve was flatter on Thursday (blue), than a month ago (green) and than a year ago (red).
Treasuries gained with European bonds as falling commodity prices curbed the outlook for inflation.
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Krishna Memani, chief investment officer and head of fixed income at OppenheimerFunds, which has $233 billion assets under management, said he doesn’t expect the 10-year yield to reach 3% in the foreseeable future.
