* U.S. 10-year yield touches record low at 1.53 pct
* Europe, poor U.S. data stoke safety bids for bonds
* U.S. Treasuries set for best month since September
* Investors also snap up German, Japanese, Swiss debt
By Richard Leong
NEW YORK, May 31 (Reuters) – Benchmark U.S. government bond
yields fell to record lows on Thursday as Europe’s worsening
debt crisis spurred a global race for safe-haven assets.
Compounding investor anxiety was a batch of disappointing
U.S. data, fears about Spain’s troubled banks deepening Europe’s
debt crisis and Greece’s possible exit from the euro zone.
The weak U.S. jobs and manufacturing figures before Friday’s
closely-watched monthly non-farm payrolls report raised bets
that the current tepid U.S. growth may vanish and the Federal
Reserve could embark on a third round of large-scale bond
purchases to avert a recession, analysts and traders said.
U.S. benchmark 10-year Treasury note yields fell
as low as 1.53 percent – the lowest on record going back more
than two centuries, according to Reuters data. They last traded
at 1.56 percent, down nearly 6 basis points on the day.
The 10-year yield fell nearly 36 basis points in May and has
declined 84 basis points since it peaked near 2.40 percent on
March 20.
U.S. five- and seven-year note yields
on Thursday touched record lows at 0.633 percent and 0.986
percent, respectively, while the 30-year yield came
within striking distance of its all-time low of 2.52 percent.
“These yields show there is a lot of fear out there. There
is a fear of a breakup of the euro,” said Andrew Richman,
fixed-income strategist at SunTrust Private Wealth Management in
Palm Beach, Florida. “People are pulling out of risk and into
cash and Treasuries.”
Trading volume was 27 percent above its five-day average,
but below its longer-term averages, according to Tradeweb.
In the derivatives market, most Treasury futures and latter
interest rates futures hit contract highs.
Other than U.S. Treasuries, pension funds, insurance
companies and other professional investors scrambled for other
traditional safe-haven government bonds like those of Germany,
Japan and Switzerland. They also grabbed Swedish, Finnish and
Danish sovereign debt on the perception these countries are
among the least vulnerable in case the euro zone’s finances
deteriorate further.
In fact, the 10-year bond yields of these countries are
lower than of the United States.
In a sign of how the stampede for safety has skewed the
global debt market, shorter-dated Swiss yields moved into
negative territory, while the German two-year yield
slid near zero this week. Both are below the interest rate on
U.S. one-month bills.
“The market is moving on emotions. People are getting
extremely scared,” SunTrust’s Richman said.
Global stocks, corporate bonds and commodities showed some
stabilization late Thursday after selling off in earlier trade
as investors bailed.
The few winners in this tumbling yield climate were holders
of Treasuries and U.S. homeowners who can refinance into lower
interest mortgages.
The U.S. government debt market is poised to record its best
month since September. Barclays’ Treasury total return index was
up 1.52 percent through Wednesday, which would be the biggest
monthly rise in eight months.
Long-dated Treasuries fared best among all maturities.
Barclays’ return index on Treasury issues whose maturities are
longer than 20 years was up 7.59 percent through Wednesday. This
would be the seventh biggest monthly rise for this index in the
past 20 years, according to Barclays.
Some investors, however, warned U.S. Treasuries have become
riskier than the past, as the United States faces its own fiscal
and problems.
Bill Gross, who runs the world’s biggest bond fund at PIMCO,
wrote in his monthly newsletter that China and large private
investors including PIMCO might reduce their Treasuries holdings
in favor of higher-yielding assets.
WHAT’S JOBS GOT TO DO WITH IT?
As investors have reacted largely to developments in recent
weeks, it is unclear how they would trade on the monthly
payrolls data due on Friday at 8:30 a.m. EDT (1230 GMT).
“Most of the U.S. data has not been as strong as most people
were looking for and there certainly has been a slowing in the
U.S. economy and the jobs number tomorrow is playing a role in
that,” Scott DiMaggio, director of global fixed-income with
AllianceBernstein in New York.
In a recent Reuters poll, economists expected U.S. employers
to have added 150,000 jobs in May, up from 115,000 in April,
while the unemployment rate likely held steady at 8.1 percent.
If the May payroll figure were to fall near 100,000,
benchmark Treasury yields could easily break below 1.50 percent,
analysts and traders said.
On the other hand if the May’s job growth comes in closer to
200,000, 10-year U.S. yields should move back toward 1.75
percent, they said.
With benchmark Treasury yields at these rock-bottom levels
and below those set during 2007-09 global financial crisis, some
analysts reckon they are already priced in a
weaker-than-expected payroll reading for May in the wake of
Thursday’s disappointing jobless claims and ADP private jobs
report.
“It might just be a blip on the radar,” said Robert Tipp,
chief investment at Prudential Fixed Income in Newark, New
Jersey, which manages $332 billion in assets.
