By Dow Jones Business News, September 24, 2013, 03:50:00 PM EDT
--Benchmark 10-year Treasury yield hits six-week low
--Ten-year bond yields in Germany, U.K. make fresh low in September
--Demand on two-year Treasury sale perks up as Fed soothes rates anxiety
--U.S. fiscal impasse also boosts demand for Treasurys as safe harbor
By Min Zeng
Bond yields in three of the world's major government debt markets dropped to a multiweek low Tuesday, the latest sign
the Federal Reserve has soothed anxiety over rising interest rates further.
The benchmark 10-year Treasury note's yield fell to a six-week low. The yields on the 10-year German government bond
and the 10-year U.K. government debt both touched the weakest level this month. Bond prices rise when their yields fall.
Yields in these three nations serve as benchmark borrowing cost for consumers and businesses in the U.S. and Europe.
They have risen over the past few months, driven by worries that the Fed may soon take the first step toward withdrawing
its monetary stimulus--a monthly buying spree of $85 billion in Treasurys and mortgage-backed securities.
Buyers have returned after the Fed decided last week to refrain from cutting the size of bond purchases amid mixed
economic releases. Investors took it as a sign the central bank wouldn't be in a rush to reduce stimulus support.
"The Fed has pushed bond bears into hiding in the short term," said Jason Evans, co-founder of hedge fund NineAlpha
Capital LP in New York. "There has been some recalibration of the timing for the Fed's tapering going on which has
helped stabilize many core bond markets."
In late-afternoon trade, the benchmark 10-year Treasury note's price rose for a third straight session and was up 16/
32, yielding 2.653%, according to Tradeweb. The yield dipped to 2.641% during Tuesday's trading, the lowest level since
In Europe, the 10-year German government bond's yield fell to 1.794% Tuesday, while the 10-year U.K. government debt's
yield slid to 2.8%.
The U.S. government benefited from the improving sentiment on bonds. Tuesday, a sale of $33 billion in two-year notes
attracted decent demand, which in turn gave bond prices in the secondary market an extra boost.
It was the first Treasury note auction following last Wednesday's interest-rate statement released by the Fed.
The two-year note auction was offered at a yield of 0.348%, lower than 0.354% traded right before the sale, which
suggested demand was stronger than dealers had anticipated. The auctioned yield fell from 0.39% at the auction in
August, lowering the Treasury's short-term borrowing cost.
"The belief that the Fed is not tapering anytime soon is supporting Treasurys," said Larry Milstein, head of
government and agency trading at R.W. Pressprich & Co. in New York. "In reality, the Fed's decision to taper is data-
The Fed's decision to stand pat was bolstered by mixed reports Tuesday. The S&P/Case-Shiller 20-city home-price index
for July rose 12.4% from year-earlier levels, a positive sign for the housing market. But the monthly index of consumer
confidence from the Conference Board fell to 79.8 in September from 81.8 a month earlier.
The 10-year yield has climbed from 1.61% on May 1, and briefly crossed 3% earlier this month.
Traders bet the yield likely settles in a range between 2.5% and 2.85% in the near term as the Fed's policy outlook
would keep a lid on bond yields.
Tom di Galoma, co-head of fixed income rates trading in New York at ED & F Man Capital Markets, said concerns over the
ongoing fiscal impasse among lawmakers also boosted the allure of Treasury bonds as a safe place to park cash.
Congress has until Monday to pass a federal budget, or else the government will shut down. In addition, the Treasury
is set to bump up against its $16.7 trillion borrowing limit around mid-October, unless legislators move to raise the
COUPON ISSUE PRICE CHANGE YIELD CHANGE
3/8% 2-year 100 3/32 flat 0.330% flat
5/8% 3-Year 100 20/32 up 1/32 0.665% -1.3BP
1 1/2% 5-year 100 12/32 up 7/32 1.418% -4.4BP
2% 7-Year 100 19/32 up 12/32 2.033% -5.8BP
1 3/4% 10-year 98 21/32 up 16/32 2.653% -6.1BP
2 7/8% 30-year 99 5/32 up 1 8/32 3.672% -7.0BP
2-10-Yr Yield Spread: +232.3 BPS Vs +238.0 BPS
Write to Min Zeng at email@example.com
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