US Markets

U.S. yields decline, tracking Europe, after ECB eases policy

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields fell across the board on Thursday, in line with the European bond market, after the European Central Bank cut interest rates to a record low and said it would restart asset purchases to boost its slumping economy.

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 12 (Reuters) - U.S. Treasury yields fell across the board on Thursday, in line with the European bond market, after the European Central Bank cut interest rates to a record low and said it would restart asset purchases to boost its slumping economy.

U.S. 2-year and 10-year yields pulled back from five-week highs hit early in the global session, while 30-year yields slid from four-week peaks.

In Europe, Germany's 10-year bond yield tumbled to -0.64% DE10YT=RR while 30-year debt fell almost 20 basis points at one point DE30YT=RR. Italian 10-year bond yields hit a record low of 0.782% IT10YT=RR. GVD/EUR

The ECB on Thursday cut its deposit rate to an all-time low of -0.5% from -0.4% and will restart bond purchases of 20 billion euros a month from November, it said in a statement. L5N2622PA

"They delivered pretty much the consensus expectation," said Subadra Rajappa, head of U.S. rates strategy, at TD Securities in New York.

"There was debate whether they would introduce quantitative easing, but they pretty much delivered a dovish message. That's what is kind of leading the rally in bonds here."

The ECB action overshadowed a stronger-than-expected U.S. core inflation number, which posted the largest annual gain in a year. The consumer price index excluding the volatile food and energy components gained 0.3% for a third straight month.

The inflation report, however, should not prevent the Federal Reserve from raising interest rates later this month.

But Andrew Hunter, senior U.S. economist, at Capital Economics in London said the inflation data provides "further reason to believe market expectations of significant further easing will ultimately be disappointed."

In mid-morning trading, U.S. benchmark 10-year note yields US10YT=RR fell to 1.721% from 1.733% late on Wednesday.

Yields on 30-year bonds were also lower at 2.195% US30YT=RR from 2.208% on Wednesday.

U.S. two-year yields were little changed at 1.672% US2YT=RR.

U.S. Treasury Secretary Steven Mnuchin on Wednesday reiterated that the government is seriously considering issuing a 50-year bond next year.

Andre Severino, global head of fixed Income at Nikko Asset Management in London, said he is in favor of ultra-long bonds.

"If there's ever a market to launch those, this is the time. From the government's perspective, it makes a lot of sense," said Severino.

"If there's infrastructure projects that need to be done, I think these are very attractive rates to finance those projects. And given the debt profile of the U.S., I think there would be tremendous demand for ultra-long bonds."

Later on Thursday, the Treasury will sell $16.0 billion in 30-year bonds in an auction.

September 12 Thursday 9:51AM New York / 1351 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.915

1.9563

-0.006

Six-month bills US6MT=RR

1.83

1.8778

-0.005

Two-year note US2YT=RR

99-172/256

1.6704

0.000

Three-year note US3YT=RR

99-176/256

1.6072

-0.003

Five-year note US5YT=RR

98-104/256

1.5851

-0.007

Seven-year note US7YT=RR

98-36/256

1.6588

-0.014

10-year note US10YT=RR

99-40/256

1.7178

-0.015

30-year bond US30YT=RR

101-72/256

2.1914

-0.017

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-1.50

0.00

U.S. 3-year dollar swap spread

-3.75

0.50

U.S. 5-year dollar swap spread

-7.00

0.00

U.S. 10-year dollar swap spread

-12.00

0.00

U.S. 30-year dollar swap spread

-42.50

-0.25

(Reporting by Gertrude Chavez-Dreyfuss Editing by Raissa Kasolowsky and Chizu Nomiyama)

((gertrude.chavez@thomsonreuters.com; 646-223-6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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