Treasury yields retreated further early Wednesday as stock encountered headwinds around the globe, fueling some bids into assets perceived as havens like government bonds.
How are Treasurys performing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.49% slipped 2.1 basis points to 2.767%, the lowest since Feb. 06, according to FactSet data. The 2-year note yield TMUBMUSD02Y, -0.35% shed 1.2 basis point to 2.266%, while the 30-year bond yield TMUBMUSD30Y, -0.40% was down 1.4 basis point to 3.017%.
The spread between the 2-year note yield and the 10-year note yield has fallen to 50.1 basis points, a postcrisis low.
Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
Equities across the world took a beating after U.S. tech stocks were under pressure but off their worst levels on Tuesday, with Asian and European stock markets faltering. Government bonds, on the other hand, saw inflows as investors sought out safe berths from where they could shelter against the market turmoil.
The steep fall in Treasury yields in the past few days has caught bearish hedge funds and other speculative traders by surprise, many of which were betting that bond prices would fall and yields rise. The number of speculators’ short positions in 10-year Treasury note futures surpassed long positions by 313,304 contracts on March 20, according to the Commodity Futures Trading Commission. Backpedaling traders may have “covered”, or unwound, their short bets by buying U.S. government bonds, adding further momentum to Wednesday’s slide.
Investors will see the last batch of debt auctions, with the 7-year note and the 2-year floating rate note going on the block today. Before the week, analysts thought the bond market would have trouble absorbing the close to $300 billion of supply, but the resurgence of equity volatility this year has kept the 10-year Treasury yield from breaking above 3.0%, a key psychological level.
Demand for Treasurys are likely to remain healthy for the week on quarter-end buying as money managers up on government paper to maintain the average maturity of their portfolios. When debt rolls off a bond fund portfolio, the average maturity will fall, drifting away from the average maturity of their competing benchmark index.
What did market participants say?
“Stock market volatility and quarter-end buying has Treasuries well bid at the moment. The break 2.79% on 10yr yields has produced a short-covering scenario for most of the hedgers and Marco accounts,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
What else is on investors’ radar?
Traders will gear up for a raft of early economic data. Fourth-quarter revisions for GDP are set to come out at 8:30 a.m. Eastern, along with the trade deficit in goods for February. Pending home sales for February will come in at 10 a.m.