Meanwhile, U.S. stocks inched lower Thursday morning in choppy trading after the S&P 500 scored Wednesday its biggest one-day comeback in four years (http://www.marketwatch.com/story/us-stock-futures-slump-as-china-devalues-yuan-again-2015-08-12).
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Benchmark 10-year yields fell 0.6 of a percentage point even though the largest foreign holder of US debt pared its stake between March last year and May of this year, based on the most recent data available from the Department of the Treasury.
Investors expect these inflation and growth concerns to complicate plans for U.S. policymakers to raise interest rates for the first time in nearly a decade.
JPMorgan lowered its year-end forecast for 10-year yields to 2.50 percent from 2.55 percent, while holding predictions for two-year notes at 1.25 percent.
China’s pullback from US securities is “far less ominous for the prospects for the Treasury market than some sensationalists might think”, said Ian Lyngen, a government bond strategist at CRT Capital in Stamford, Connecticut.
“We are seeing a global risk off move, with worries around China clouding the outlook for inflation and leading to a reappraisal of whether the Fed will raise rates in September”, said Commerzbank strategist David Schnautz.
Treasury yields also got a lift from a government report that retail sales rose 0.6 percent in July.
Similar stories can be told for many other EM economies, with the net result that more capital stays in or returns to developed markets, depressing bond yields and supporting the prices of other DM assets.
Investors ran for the safety of German bonds as they try to gauge, what could be the global implication of massive devaluation of Chinese Yuan by Peoples bank of China (PBoC).
Prices for the 10-year note recovered some as traders readied for a $24 billion auction of the maturity later on Wednesday.
The data depicted solid U.S economic momentum and bolstered expectations of a Fed rate hike as early as next month. Inflation is a main threat to the value of long-term bonds. As seen in the below chart, the two-year yield has been mimicking the tentative interest rate hike. “US Treasuries are very attractive now”.
Therefore, commenting on the additional costs or saving to the government from issuance of a Treasury bond at a particular auction compared with the yield rate of a Treasury bond issued at another auction or in a particular period is not acceptable and justifiable.
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A weaker Chinese yuan has sent many emerging-countries currencies falling and has pushed the dollar higher.
