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BLBG: Treasuries Rally With Germany, Japan on Global Growth Concern
 
Treasuries rose, along with bonds in Germany (GDBR10) and Japan, as signs global growth is losing momentum fueled demand for the safest securities.

U.S. debt rose for an eighth day, the longest streak in two years, after yields yesterday slid to the least since May 2013. The odds of the Federal Reserve raising interest rates by September have declined to less than 50 percent this month. Germany’s 10-year yield declined to a record amid signs its economy is headed for recession, while Greece’s 10-year yield jumped 1.09 percentage points, the biggest increase since July 2012, pushing yields higher in Spain, Ireland and Portugal.

“We’re back in crisis mode,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 22 primary dealers that trade with the Fed. “The peripherals in Europe are blowing out. There’s just a lot of uncertainty.”

The 10-year yield dropped 10 basis points, or 0.10 percentage point, to 2.04 percent at 8:38 a.m. New York time, Bloomberg Bond Trader prices show. The 2.375 percent note due in August 2024 rose 7/8, or $8.75 per $1,000 face amount, to 102 31/32.

The last time benchmark notes gained for eight successive days was the period ended Sept. 26, 2012.

Record Lows

An average of bond yields on the Bank of America Merrill Lynch Global Broad Market Index dropped to 1.51 percent yesterday, the least since records began in 1996. Even after the rally, U.S. 10-year yields were higher than 15 developed-nation sovereign debt yields.

Treasury trading volume at ICAP Plc, the largest interdealer broker of U.S. government debt, more than doubled to a record $945.9 billion yesterday. The amount has averaged about $322 billion a day during the past year.

Japan’s 10-year yield dropped as low as 0.47 percent, the least since April 2013. Its German equivalent fell to a record 0.715 percent. The yield spread between 10-year Treasuries and their German counterparts narrowed to as little as 115 basis points yesterday, the least since June.

Traders cut bets the Fed will raise interest rates by September 2015 to a 31 percent chance today from 78 percent odds on Sept. 30, according to fed funds futures data compiled by Bloomberg. The central bank has kept its target rate in a range of zero to 0.25 percent since December 2008.

Market View

“The market has been in denial” about the world growth outlook for a long time, Steve Major, global head of fixed-income research at HSBC Holdings Plc in London, said on Bloomberg Television. “The model that predicts this recovery continues to fall short, and the idea that bond yields will continue to stay low for longer makes sense.”

HSBC’s Major has forecast since Jan. 14 that the Treasury 10-year yield will be at 2.1 percent by year-end. The median forecast of analysts compiled by Bloomberg at the time was for an increase to 3.43 percent.

The decline in the U.S. 10-year yield pushed its 14-day relative strength index to 18. That’s the lowest since December 2000 and below the 30 level that signals to some traders the yield has fallen too far, too fast, and may be due to reverse course. Yields move in the opposite direction to prices.

The extra yield on 10-year Treasuries over two-year notes fell 10 basis points to 173 basis points today after shrinking to as low as 161 basis points yesterday, the narrowest since May 2013.

Economic Outlook

U.S. retail sales dropped 0.3 percent last month, the Commerce Department said yesterday, more than the 0.1 percent decline predicted by analysts surveyed by Bloomberg News. Data this week has shown German investor confidence slid to the weakest in almost two years, U.K. inflation stalled and China’s consumer-price gains declined to the lowest in five months.

The shrinking gap reflects global slowdown concerns, according to Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $20 billion.

“The market is in a risk-off mode and people are looking for the safest assets,” said Kind. “Europe is coming close to a Japanese scenario and that is a concern. Some people are now betting for quantitative easing by the European Central Bank and possibly another round of QE by the Fed.”

Spain’s 10-year yield climbed 19 basis points to 2.31 percent, the biggest daily increase since June 24, 2013. Ireland’s 10-year yield increased 22 basis points to 1.92 percent and the rate on equivalent Portuguese bonds jumped 43 basis points to 3.71 percent.

Bonds rallied across Asia Pacific today, with Australia’s 10-year yield falling to as low as 3.16 percent, the least since May 2013. India’s (GIND10YR) slid to 8.35 percent, the lowest in more than a year. Taiwan’s five-year yield fell six basis points to 1.14 percent, the biggest one-day drop since August 2013.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox