Bonds: US Treasuries fall back after strong run
Posted on: 19 Nov 2012 by Max Black

Yields and basis point (bp) movements of some of the most-watched 10-year bonds this afternoon:

UK: 1.78% (+5bp)
US: 1.62% (+4bp)
Germany: 1.36% (+3bp)
France: 2.07% (+/-0bp)
Spain: 5.89% (+2bp)
Italy: 4.88% (+2bp)

[NOTE: there are 100bp to a percentage point]

US Treasuries declined on Monday as investors locked in profits after a strong rise over the past few months.

Borrowing rates on benchmark bonds were rebounding from a two-month low of 1.55% (on Friday) as concerns about rising tensions in the Middle East, the Eurozone crisis and US ‘fiscal cliff’ spurred investors to build positions in safe-haven assets.

The rise was halted though today as markets reacted to comments over the weekend by US lawmakers who seem to be optimistic about solving the ‘fiscal cliff’.

Speaking to reporters in Bangkok yesterday, President Barack Obama said: ‘I am confident we can get our fiscal situation dealt with.’

Borrowing rates on US benchmark notes traded within a range of just 6.2 basis points last week, the narrowest range since July 2004, as investors took caution ahead of budget talks in Congress last week. However, fears started to subside after key members emerged on Friday labelling the discussions as ‘constructive’.

According to an article in The Wall Street Journal yesterday, unless lawmakers agree on a way to stop or delay the tax increases and spending cuts, safe-haven bonds such as those in the US will be the most sought-after assets in the coming weeks, as opposed to stocks.

Scott DiMaggio, the director of global fixed income at AllianceBernstein, told the WSJ: ‘The fiscal cliff has really jumped into the forefront [...] Even if we don’t go over the cliff, some of the policies that come out of it can still be pretty negative for stocks.’

While stocks have typically fared well in the Thanksgiving season over the past 10 years, analysts believe that failing to deal with the ‘cliff’ could buck that seasonal trend.

With Treasuries being seen as the ‘go-to asset’ in times of uncertainty, some see the yield on 10-year US bonds falling to around 1.2% by the end of 2012.

Tags: 10 year bonds | benchmark notes | budget talks | dimaggio | fiscal situation | lawmakers | percentage point | safe haven | tax increases | treasuries