10-year notes headed for their biggest weekly advance since the stock market crash in 1987, sending yields to record lows, as the risk of a global recession deepened.
Yields on two-, five- and 10-year notes and 30-year bonds fell to the least since the Treasury began regular sales of the securities as investors dumped equities and corporate debt in favor of the safest assets. Traders this week started to bet the Federal Reserve will cut interest rates to 0.25 percent from 1 percent to rescue the economy, which shrank in the third quarter.
``People are rushing to Treasuries,'' said Hiromasa Nakamura, senior fund investor in Tokyo at Mizuho Asset Management Co., which has $42.6 billion in assets. ``The rally is the biggest that I can remember.'' The U.S. may cut rates to zero and keep them there, he said.
The yield on the 10-year note was little changed today at 3.01 percent as of 10:50 a.m. in Tokyo, according to BGCantor Market Data. The rate fell 72 basis points this week, the most since October 1987. The 3.75 percent security maturing in November 2018 traded at a price of 106 9/32. A basis point is 0.01 percentage point.
Treasuries have returned 9.3 percent in 2008, heading for their best year since 2002, according to Merrill Lynch & Co.'s U.S. Treasury Master Index. U.S. corporate bonds have handed investors a 16 percent loss so far in 2008, their worst year since the Merrill figures start in 1997.
``It's the continued meltdown of the financial system, lack of action by Washington,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. ``There's no white knight coming to save us,'' he said yesterday.
Slowing Growth
Bonds may extend their rally as economic growth slows and central banks cut interest rates and pump funds into the financial system, Goldman, Sachs & Co. said.
The yield on the benchmark U.S. 10-year bond may decline to 2.75 percent by early next year, Francesco Garzarelli, chief interest-rate strategist at Goldman, wrote in a report. Goldman, which is one of the 17 primary dealers that trade directly with the Fed, had a previous forecast of 3.5 percent.
The Standard & Poor's 500 extended its 2008 tumble to 49 percent, poised for the worst annual decline in its 80-year history. The S&P slumped 6.7 percent yesterday, reaching an 11- year low. The MSCI Asia Pacific Index of regional shares fell 2.3 percent today, for a weekly decline of 12 percent, the most since the period ended Oct. 10.
Rate Futures
Futures on the Chicago Board of trade show 32 percent odds the Fed will lower its target for overnight lending between banks by 0.75 percentage point to 0.25 percent at its next meeting on Dec. 16, from zero bets a week ago.
``It's a direct correlation with stocks,'' said Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort, also a primary dealer. ``We are the fear indicator, we are the tail being wagged by the fear in the system.''
Fed officials lowered their economic-growth estimates to zero to 0.3 percent for 2008, from 1 percent to 1.6 percent previously, the median forecast of Fed governors and district- bank presidents showed in a report this week.
Longer-dated Treasuries, which are more sensitive to inflation expectations, rallied this week on speculation the economic slump will trigger deflation, or a prolonged decline in prices. Consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, the Labor Department said yesterday.
Breakeven rates, which show the difference in yields between inflation-linked and nominal bonds, suggest traders are betting the U.S. economy will face deflation over the next two years. The two-year U.S. breakeven rate was minus 4.04 percentage points.
Yields on two-, five- and 10-year notes and 30-year bonds fell to the least since the Treasury began regular sales of the securities as investors dumped equities and corporate debt in favor of the safest assets. Traders this week started to bet the Federal Reserve will cut interest rates to 0.25 percent from 1 percent to rescue the economy, which shrank in the third quarter.
``People are rushing to Treasuries,'' said Hiromasa Nakamura, senior fund investor in Tokyo at Mizuho Asset Management Co., which has $42.6 billion in assets. ``The rally is the biggest that I can remember.'' The U.S. may cut rates to zero and keep them there, he said.
The yield on the 10-year note was little changed today at 3.01 percent as of 10:50 a.m. in Tokyo, according to BGCantor Market Data. The rate fell 72 basis points this week, the most since October 1987. The 3.75 percent security maturing in November 2018 traded at a price of 106 9/32. A basis point is 0.01 percentage point.
Treasuries have returned 9.3 percent in 2008, heading for their best year since 2002, according to Merrill Lynch & Co.'s U.S. Treasury Master Index. U.S. corporate bonds have handed investors a 16 percent loss so far in 2008, their worst year since the Merrill figures start in 1997.
``It's the continued meltdown of the financial system, lack of action by Washington,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. ``There's no white knight coming to save us,'' he said yesterday.
Slowing Growth
Bonds may extend their rally as economic growth slows and central banks cut interest rates and pump funds into the financial system, Goldman, Sachs & Co. said.
The yield on the benchmark U.S. 10-year bond may decline to 2.75 percent by early next year, Francesco Garzarelli, chief interest-rate strategist at Goldman, wrote in a report. Goldman, which is one of the 17 primary dealers that trade directly with the Fed, had a previous forecast of 3.5 percent.
The Standard & Poor's 500 extended its 2008 tumble to 49 percent, poised for the worst annual decline in its 80-year history. The S&P slumped 6.7 percent yesterday, reaching an 11- year low. The MSCI Asia Pacific Index of regional shares fell 2.3 percent today, for a weekly decline of 12 percent, the most since the period ended Oct. 10.
Rate Futures
Futures on the Chicago Board of trade show 32 percent odds the Fed will lower its target for overnight lending between banks by 0.75 percentage point to 0.25 percent at its next meeting on Dec. 16, from zero bets a week ago.
``It's a direct correlation with stocks,'' said Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort, also a primary dealer. ``We are the fear indicator, we are the tail being wagged by the fear in the system.''
Fed officials lowered their economic-growth estimates to zero to 0.3 percent for 2008, from 1 percent to 1.6 percent previously, the median forecast of Fed governors and district- bank presidents showed in a report this week.
Longer-dated Treasuries, which are more sensitive to inflation expectations, rallied this week on speculation the economic slump will trigger deflation, or a prolonged decline in prices. Consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, the Labor Department said yesterday.
Breakeven rates, which show the difference in yields between inflation-linked and nominal bonds, suggest traders are betting the U.S. economy will face deflation over the next two years. The two-year U.S. breakeven rate was minus 4.04 percentage points.
No comments:
Post a Comment