Bond Report: 10-year Treasury yield plumbs 10-week low to end Thanksgiving week

Treasury yields ticked lower Wednesday, following the fall in European debt yields, after a round of tepid economic data appeared to furnish new obstacles to the European Central Bank’s plans to normalize monetary policy.

The 10-year Treasury note yield

TMUBMUSD10Y, -0.81%

 gave up 1.6 basis points to 3.045%, its lowest since Sep. 17, extending the weeklong decline to 2.9 basis points. The 2-year note yield

TMUBMUSD02Y, +0.14%

was mostly unchanged at 2.814%, leaving it virtually flat for the week. The 30-year bond yield

TMUBMUSD30Y, -0.36%

fell 0.5 basis point to 3.306%, adding to a weeklong decline of 2.1 basis points. Bond prices move in the opposite direction of yields.

The German 10-year bond yield

TMBMKDE-10Y, -8.20%

fell 3.1 basis points to 0.339%. Trading in German government paper can influence yields for Treasurys as both share safe haven status among investors.

Bond yields fell across Europe after a raft of lackluster eurozone data. Germany’s gross domestic product fell by 0.2% in the third-quarter, the first negative reading since early 2015. And the eurozone composite purchasing manufacturer’s index for November slipped to 52.4, its lowest in nearly four years.

The worsening economic backdrop could complicate the ECB’s efforts to normalize monetary policy. Though, the ECB is expected to announce the end of further bond purchases at the next December meeting, analysts say the central bank may have to cut its growth and inflation forecasts. In turn, investors may push back the timetable for the central bank’s first rate increase since 2011.

”The economy is very much weaker than the [ECB] is hoping. That really does complicate their guidance. Depicting the reality of the eurozone economy is going to be an important aspect of their future communications,” said James Athey, senior investment manager for Aberdeen Standard Investments.

Athey says ECB President Mario Draghi, however, will try to duck questions on the central bank’s changing economic outlook in the knowledge that he still has several months to see if the data recovers before having to deal with the issue of weaker growth head-on. Back in its June meeting, the ECB had promised to leave rates at current levels at least through the summer of 2019.

“Draghi’s going to try to buy himself some time. The ECB don’t have to make a decision at this stage,” he said.

As the Federal Reserve raises rates and the ECB is still unwinding its crisis-era bond-buying program, the widening gap in U.S. and European monetary policy helped to extend the once-narrow spread between the German 10-year yield and U.S. 10-year yield to a multidecade high of 278 basis points, or 2.78 percentage points, on Nov. 6. This spread now stands at 271 basis points, and at the start of 2018, that spread was 200 basis points.

Adding to the bond market’s bullish tone, stocks fell as oil prices extended their slide, spurring inflows into haven investments like U.S. government paper. Crude futures

CLF9, -7.76%

  booked their seventh straight weekly fall amid concerns of production gluts and slower global growth. The broad market SP 500

SPX, -0.66%

fell 3.8% this week.

See: Stock indexes log worst Thanksgiving week since 2011—all three fall at least 3.5%

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Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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