U.S. Government Bonds Strengthen on Choppy Global Signals

By Cynthia Lin 

U.S. Treasury prices rose Wednesday as choppy global growth signals kept investors seeking out safer assets.

In early New York trading, benchmark 10-year notes increased 6/32 in price to yield 2.337%, according to Tradeweb. The 30-year bond gained 15/32 to yield 3.064%. Bond yields decline when prices rise.

Those gains came after a day off for the U.S. bond markets in observance of Veterans Day, and keep the market in a tight range established since the start of the month. Bond investors have had to balance between decent U.S. economic signals and uncertainties abroad, leaving the 10-year yield in a 2.27% to 2.40% range.

Overnight, the Bank of England reduced its growth and inflation outlook for the U.K., while Germany reported a downturn in wholesale prices for October. Meanwhile, the U.S. has shown continued progress in its labor-market recovery, with last Friday's employment report showing further job creation and a decline in the unemployment rate.

The balancing act required of bond investors was reflected in J.P. Morgan's latest weekly Treasury client survey. As of Nov. 10, the survey showed 24% of all its client accounts betting on lower Treasury prices, while 15% positioned for higher prices, for a net short of 9. Among just its active, more-speculative clients, however, positions swung into a net long of 8, the most since February.

Despite the historically low yields on U.S. Treasurys, bond traders say the array of global uncertainties are keeping the safe-haven bonds in demand. Their yields are also relatively attractive compared with other haven assets, such as the 10-year German bund, which last yielded 0.80%.

That is why some traders expect Wednesday afternoon's 10-year note auction to attract a decent crowd. The U.S. Treasury is scheduled to sell $24 billion in 10-year notes, with results due just after 1 p.m. EST.

Bond traders say the key to pushing U.S. rates higher is stronger signs of inflation. While many bond strategists have lowered their year-end 10-year yield forecasts to around 2.75%, that still suggests persistent selling from current levels over the remaining seven weeks in 2014.

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