Stock, Commodity Selloff Boosts Bull Run In Treasurys
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By Min Zeng Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A broad-based selloff in stocks and commodities drove investors into Treasurys Friday, helping the market resume the bull run that began in early April.
The benchmark 10-year note posted a fourth-straight weekly price gain and two-year notes posted a ninth-straight weekly gain--the longest such run since February 2008. No major coupon has had back-to-back sessions of lower prices since May 19.
The weak day for prices Thursday was all but erased Friday, thanks in large part to a bout of disappointing data from Asia and Europe. Those indicators fanned worries about the global economic outlook, which has been hurt by a steady drum beat of weaker-than-forecast U.S. economic reports in the past few weeks.
"Continued signs of a soft patch in global economic activity coupled with ongoing concerns over the Greek debt crisis catalyzed a risk reduction trade in advance of the weekend," said Chris Ahrens, head of U.S. interest rate strategy at UBS Securities LLC in Stamford, Conn.
In late afternoon trade, the benchmark 10-year note was 7/32 higher to yield 2.975%. Bond yields move inversely to their prices. The yield tumbled to a six-month low of 2.917% earlier this week. It traded above 3.5% in early April. Ahrens said the yield could fall to as low as 2.75%--a level not seen since November--in the next few weeks if U.S. jobs data fall short of expectations or if conditions at the periphery of the euro zone aren't resolved in a satisfactory manner.
"Something has to change for the rate drop trend to get derailed," said James Golden, head of Treasury trading in New York at Jefferies & Co. "Stronger data? Probably not yet. Stronger European peripherals? Probably not. Stronger equities or commodities? Maybe, but probably not."
Interest rate futures indicate investors have all but given up on any Federal Reserve rate increase in the first half of next year. Just a month ago, a June 2012 rate increase was fully priced into the futures.
The two-year note's yield, the most sensitive to changes in Fed's rate policy outlook, hit a seven-month low of 0.373% earlier this week. The two-year note was 1/32 higher Friday to yield 0.404%.
US Swap Spreads Widen
U.S. two-year swap spread--which measures the differential between the two-year swap rate and two-year Treasury yield and is a main gauge of credit risks--was 0.25 basis point wider at 19.5 basis points. The 10-year swap spread was 0.25 basis point wider at 10.75 basis points.
COUPON ISSUE PRICE CHANGE YIELD CHANGE 1/2% 2-year 100 6/32 up 1/32 0.404% -2.0BP 1% 3-Year 100 3/32 up 2/32 0.716% -2.1BP 1 3/4% 5-year 100 28/32 up 3/32 1.564% -2.4BP 2 3/8% 7-Year 100 21/32 up 5/32 2.270% -2.5BP 3 1/8% 10-year 101 9/32 up 7/32 2.975% -2.5BP 4 3/8% 30-year 103 6/32 up 15/32 4.186% -4.0BP
2-10-Yr Yield Spread: +257.1 BPS Vs +257.6 BPS
