The scramble for the safety of U.S. debt is back on.
The benchmark 10-year Treasuries yield slid to the lowest in almost 10 months as stocks and oil resumed declines that have dimmed investors’ outlook for global economic growth.
The diminished confidence added to doubts about the Federal Reserve’s projected pace for interest-rate increases this year. Derivatives indicate traders aren’t even pricing in one hike in 2016, while policy makers’ median forecast in December called for four increases this year.
“There’s this fear that if oil is hitting lows, it’s both a symptom and a cause of further U.S. and global growth weakness,” said Priya Misra, head of global interest-rates strategy in New York at TD Securities LLC, one of 22 primary dealers that trade with the Fed. “It’s not just risk-off, it is U.S. growth concerns.”
The Treasury 10-year note yield fell seven basis points, or 0.07 percentage point, to 1.88 percent as of 11:03 a.m. in New York, according to Bloomberg Bond Trader data. The 2.25 percent security due in November 2025 rose 21/32, or $6.56 per $1,000 face amount, to 103 11/32.
Respite Over
The Bank of Japan’s additional monetary stimulus last week interrupted the flight to safety that’s swept through markets at the start of the year. Stocks gained and Treasuries fell Monday. Yet as energy costs resumed their slide Tuesday, global equities fell and the U.S. bond-market rally picked up steam. Bank shares fell alongside those of oil producers, which may signal investors are more concerned weak energy prices will have a lasting impact on the global economy, Misra said.
A light calendar for economic data Tuesday gave traders little to focus on besides the declines in oil and stocks. The Citigroup Economic Surprise Index shows U.S. data are falling short of expectations by the most in eight months.
Traders see a 55 percent chance the Fed will raise rates at or before its December meeting, according to data compiled by Bloomberg. At the end of last year, that probability was 93 percent.
‘Panicky Flows’
“People are starting to get nervous,” said Thomas Roth, senior Treasuries trader at Mitsubishi UFJ Securities USA Inc. “They’re starting to drive panicky flows into Treasuries.”
Fed Vice Chairman Stanley Fischer said Monday central-bank officials are undecidedabout what to do next on policy due to difficulties judging the impact of the global outlook on the U.S.
Economists have trimmed their forecasts for Treasury yields, driven by a worsening outlook for global growth and inflation. The year-end weighted average forecast in a Bloomberg survey of forecasts for yields has fallen to 2.69 percent, from about 3.2 percent six months ago. Both figures are still above the current yield of 1.93 percent.
