SINGAPORE – Treasury 30-year bonds extended their rally this year to 13 percent as Europe’s economic growth lags behind expectations and central bankers around the world make the case for keeping interest rates low.
So-called long-bond yields dropped to levels unseen in 11 months Thursday after a report showed European gross domestic product expanded 0.2 percent in the first quarter, half the pace economists predicted. Federal Reserve Chair Janet Yellen said Thursday the U.S. economy has further to go to achieve full health. European Central Bank President Mario Draghi suggested last week he plans to cut interest rates.
“It’s a flight to quality” leading investors to buy Treasuries, said Kazuaki Oh’e, a debt salesman at CIBC World Markets Japan Inc. in Tokyo. “For at least a year, the Fed is not going to raise rates. That is helpful for Treasuries.”
Benchmark 10-year yields were little changed at 2.49 percent as of 6:50 a.m. in London, based on Bloomberg Bond Trader prices. The price of the 2.5 percent security due in May 2024 was 100 2/32.
Thirty-year bonds yielded 3.33 percent. The figure dropped to 3.30 percent Thursday, a level not seen since June. This year’s long-bond rally compares to a 15 percent loss for all of 2013, according to Bank of America Merrill Lynch indexes.
Japan’s 10-year yield fell one basis point to a two-month low of 0.58 percent, while Australia’s dropped five basis points to 3.71 percent and touched the lowest since August at 3.70 percent. A basis point is 0.01 percentage point.
The Bloomberg Global Developed Sovereign Bond Index has returned 4.4 percent in 2014, rebounding from a 4.6 percent loss last year.
Watching rates
Yellen said last week the U.S. economy still needs help from the Fed. While the central bank is unwinding the bond purchases it has used to fuel growth, it has kept its benchmark interest rate close to zero since 2008.
Bank of Japan Governor Haruhiko Kuroda said Thursday the BOJ has many options to “ease monetary conditions” if necessary.
The ECB’s Draghi signaled last week that officials are ready to reduce interest rates in June if needed. Bank of England Governor Mark Carney indicated this week that he may not raise U.K. interest rates until 2015.
U.S. employment, manufacturing and consumer prices are increasing, though retail sales fell short of economists’ expectations, based on reports this month. Data Friday will show gains in housing starts and consumer confidence, based on Bloomberg News surveys of economists.
“In the near term, interest rates can go to unbelievably absurd low levels,” said John Flahive, the director of fixed income for BNY Mellon Wealth Management. “It doesn’t mean they’re going to stay there.”
Flahive said his clients are looking for investments away from fixed income such as equities, speaking Thursday on the Bloomberg Radio program “The Hays Advantage” with Kathleen Hays.
