Jittery investors chase US bond yields to record lows

NEW YORK: Benchmark US government bond yields fell to record lows on Thursday as Europe’s worsening debt crisis spurred a global race for safe-haven assets.

Compounding investor anxiety was a batch of disappointing US data, fears about Spain’s troubled banks deepening Europe’s debt crisis and Greece’s possible exit from the euro zone.

The weak US jobs and manufacturing figures before Friday’s closely-watched monthly non-farm payrolls report raised bets that the current tepid US growth may vanish and the Federal Reserve could embark on a third round of large-scale bond purchases to avert a recession, analysts and traders said.

US benchmark 10-year Treasury note yields fell as low as 1.53 percent - the lowest on record going back more than two centuries, according to Reuters data. They last traded at 1.56 percent, down nearly 6 basis points on the day.

The 10-year yield fell nearly 36 basis points in May and has declined 84 basis points since it peaked near 2.40 percent on March 20.

US five- and seven-year note yields on Thursday touched record lows at 0.633 percent and 0.986 percent, respectively, while the 30-year yield came within striking distance of its all-time low of 2.52 percent.

“These yields show there is a lot of fear out there. There is a fear of a breakup of the euro,” said Andrew Richman, fixed-income strategist at SunTrust Private Wealth Management in Palm Beach, Florida. “People are pulling out of risk and into cash and Treasuries.”

Trading volume was more than double its daily averages, according to Tradeweb. In the derivatives market, most Treasury futures and latter interest rates futures hit contract highs.

Other than US Treasuries, pension funds, insurance companies and other professional investors scrambled for other traditional safe-haven government bonds like those of Germany, Japan and Switzerland. They also grabbed Swedish, Finnish and

Danish sovereign debt on the perception these countries are among the least vulnerable in case the euro zone’s finances deteriorate further.

In fact, the 10-year bond yields of these countries are lower than of the United States.

In a sign of how the stampede for safety has skewed the global debt market, shorter-dated Swiss yields moved into negative territory, while the German two-year yield slid near zero this week. Both are below the interest rate on US one-month bills.

“The market is moving on emotions. People are getting extremely scared,” SunTrust’s Richman said.

Global stocks, corporate bonds and commodities showed some stabilization late Thursday after selling off in earlier trade as investors bailed.

The few winners in this tumbling yield climate were holders of Treasuries and US homeowners who can refinance into lower interest mortgages.

The US government debt market is poised to record its best month since September. Barclays’ Treasury total return index was up 1.52 percent through Wednesday, which would be the biggest monthly rise in eight months. reuters

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