BOND REPORT: Treasury Prices Rise Amid Global Equity Slump

By Ellie Ismailidou, MarketWatch

Treasury prices rose Wednesday, pushing yields lower, as disappointing earnings releases that weighed on stocks sparked appetite for safe-haven assets, like Treasury bonds.

After quarterly reports from Apple Inc. (AAPL) and Microsoft Corp. (MSFT) disappointed, U.S. stocks moved lower (http://www.marketwatch.com/story/us-stocks-on-track-to-open-lower-as-drops-by-apple-microsoft-weigh-2015-07-22) and the Treasury market got a boost.

The yield on the 10-year Treasury declined 1.5 basis point to 2.327%, while the yield on the two-year inched 0.4 basis point higher to 0.690%. Meanwhile, the yield on the 30-year bond fell 1.4 basis points to 3.066%.

Treasury yields fall when prices rise and vice versa.

News that U.S. home prices rose a seasonally adjusted 0.4% in May (http://www.marketwatch.com/story/home-prices-rise-04-in-may-fhfa-2015-07-22-991425) sparked some Treasury selling on Wednesday morning, but overall did not manage to reverse the bullish trend fueled by the global risk-off sentiment.

As the economic calendar is lighter than usual this week, the influence of earnings and risk-asset performance has been greater than what typically occurs, analysts said.

Between now and the next Federal Reserve meeting scheduled for July 29, "there isn't a whole lot of new data for the Fed to review," Kevin Giddis, head of fixed income capital markets at Raymond James, said in a note.

While Treasury investors are in a wait-and-see mode, in the rest of the world "it seems we are coming to the brink of the loose monetary policy," Brenda Kelly, head analyst at London Capital Group, said in a note.

Bank of Japan Governor Haruhiko Kuroda warned yesterday that he expected Japan's inflation rate to accelerate and hit the central bank's 2% target by the first half of 2016, while the Bank of England is also on inflation-watch and could move to monetary tightening as early as August.

These events are "putting the kybosh on risk assets", Kelly said, while falling commodity prices are putting pressures on the corporate bond market. (http://www.marketwatch.com/story/falling-oil-prices-add-to-high-yield-bond-markets-long-list-of-woes-2015-07-22)

Meanwhile in the eurozone, sovereign bond yields were mostly lower ahead of demanded by the country's creditors. Formal negotiations on a third bailout program for Greece can only start once the measures have legislative approval. Conversely, failure to gain a majority vote could indicate Autumn elections.

As european equities also moved lower (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCAQqQIwAGoVChMIzZKHzOzuxgIVRjI-Ch3hGwRE&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Feuropean-stocks-drop-with-tech-shares-under-pressure-2015-07-22&ei=LJuvVc3MFsbk-AHht5CgBA&usg=AFQjCNEVkqDg6J_rjmaEbgaoFK16wPa14w&sig2=U8KBzmFs5ZoIsVheoVJ76g&bvm=bv.98197061,d.cWw), the yield on the benchmark German 10-year bund declined 1.6 basis point to 0.711%.

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