Bloomberg/New York


Government bonds rallied around the world as investors bought sovereign debt on speculation the European Central Bank’s quantitative easing will shrink the pool of high-quality assets already limited by years of purchases from other central banks.
US debt was supported as investors sought refuge as polls show an anti-austerity party will win Greek elections after a vote this weekend. Benchmark 10-year yields, which offer 0.87 percentage point more than other Group of Seven nations, dropped for a second day. Germany’s 10-year yields reached a record-low 0.345% on Friday, and the nation’s five-year yield dropped
below zero.
“The lack of supply given what the ECB is going to be doing on a monthly basis will be driving euro-rates to zero or negative rates,” said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York. “It’s going to be tough for US rates to rise, given the fact that rates in Europe are so low.”
The US 10-year yield fell six basis points, or 0.06 percentage point, to 1.80% at 3:47 pm New York time, according to Bloomberg Bond Trader data. The 2.25% note due in November 2024 rose 18/32, or $5.63 per $1,000 face amount, to 104. The yield has declined four basis points since January 16, set for its fourth consecutive weekly drop.
Thirty-year bond yields dropped six basis points to 2.38%, approaching record lows of 2.35% reached on January 21.
“Relative to peers, there’s still value in the US Treasury market,” said Sean Simko, who oversees $8bn at SEI Investments Co in Oaks, Pennsylvania. There’s “the view of inflation pressures being pushed out.”
The International Monetary Fund cut its outlook for consumer-price gains in advanced economies almost in half to 1% for 2015, the Washington-based lender said in its quarterly global outlook released Jan. 19. The core US personal consumption expenditure is forecast to advance 1.6% in 2015, below the Fed’s 2% target.
The difference between yields on two-year notes and 30-year bonds was 189 basis points. It touched 185 basis points on January 21, the lowest in six years.
Treasuries have returned 1.7% this month, after gains of 6.2% in 2014, according to Bloomberg US Treasury Bond Index.
Hedge-fund managers and other large speculators reduced positions that profit from a decline in 10-year note to the least since November, US Commodity Futures Trading Commission data showed. Net-short positions totalled 145,598 contracts as of January 20.
Greek voters will decide whether Europe’s most-indebted country sticks to an austerity programme that ensures its financial lifeline from creditors such as Germany. The opposition Syriza group, which has vowed to abandon the budget constraints that underpin the support while keeping Greece in the currency union, is projected by polls to gain about 32% of the vote compared with about 27% for the ruling New Democracy party.
Italy’s 10-year yield fell two basis points to 1.52% and touched 1.413%, the lowest level since Bloomberg began collecting the data in 1993. Japan’s 10-year yield dropped nine basis points to 0.23%, unwinding its surge on Thursday.
“The yield declines are all the more gasp-inducing,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “You’ll see people re-evaluating their portfolio objectives the longer yields continue to shrink.”
The ECB will buy government bonds as part of an asset-purchase programme worth about €1.1tn ($1.24tn), or €60bn a month, President Mario Draghi announced on Thursday in Frankfurt, sparking a jump in European bonds.
Canada and Denmark both cut interest rates this week. The Bank of Japan boosted a lending program and stuck to its plan to increase the monetary base at an annual pace of ¥80tn ($678bn).
The Federal Reserve is forecast to leave interest rates unchanged when policy makers meet next week. Investors have been buying US debt even as Fed Chair Janet Yellen has signalled that momentum in the labour market will likely enable the central bank to increase interest rates this year.
The chance of a Fed interest-rate increase by its October meeting was at 52%, futures data show. The central bank has kept its target for the fed funds rate at virtually zero since 2008 to support an economic recovery.
Demand for US assets pushed the Bloomberg Dollar Spot Index to its highest level since the gauge’s inception on December 31, 2004.
The US will sell $26bn in two-year notes, $35bn in five-year notes and $29bn in seven-year debt on three consecutive days starting on January 27. The two-year sale was reduced by $1bn from the prior auction, further limiting the amount of high quality debt available. Sales of the maturity peaked at $44bn from October 2009 through April 2010.