U.S. 10-Year Bond Yield Falls Below 1.9% on Growth Concerns

By Min Zeng 

        Fresh worries over U.S. economic growth momentum sent investors piling into ultrasafe Treasury bonds, sending the yield on the benchmark 10-year note's yield below 1.9%.
        Retail sales in the U.S. posted a 0.9% gain last month, lower than the 1.1% figure forecast by economists polled by The Wall Street Journal. The data bolstered expectations that the Federal Reserve would continue to take its time before shifting into higher interest rates.
        Investors are concerned that the tightening campaign, the first one since 2006, could hurt the value of outstanding bonds. But a mixed showing of U.S. economic data over the past few weeks have complicated the Fed's policy outlook. Fed officials have said that the soft patch this quarter has been driven by temporary factors such as harsh winter weather, and that the timing to raise rates hinges on how the economy performs in the months ahead.
        "The retail sales report is a continuation of disappointment which will allow the Fed to remain patient," said Sean Simko, head of fixed-income management at SEI Investments in Oaks, Penn., which has $253 billion assets under management.
        The buying sent the 10-year note's yield to as low as 1.864%, down sharply from around 1.92% right before the release.
        In recent trading, its yield was 1.876%, compared with 1.938% Monday, according to Tradeweb. When bond prices rise, their yields fall.
        Worries about the deadlock between Greece's government and its international creditors were adding to the demand for U.S. Treasury debt Tuesday.
        Reflecting these concerns, Greece's government bonds sold off and the yield on the 10-year Greek debt climbed by more than 0.3 percentage point to 11.8%.
        "The possibility of Greek default is certainly a reality the markets are not comfortable with," said Tom di Galoma, head of rates and credit trading in New York at ED&F Man Capital Markets.
        U.S. bond yields have tumbled since the start of 2014, confounding bond traders and analysts who have expected bond yields to rise to reflect the prospect of the end of zero interest rate policy from the Fed this year. The 10-year yield was 2.173% at the end of last year. It was 3.03% at the end of 2013.
        An uneven pace of the global economic growth and subdued inflation in the developed countries have boosted demand for high-grade bonds.
        Meanwhile, bond yields in Europe and Japan have tumbled to record lows this year, driven by ultraloose monetary stimulus from central banks in the eurozone, Japan, Switzerland and Sweden. That has boost the appeal of U.S. bonds as investors are struggling to obtain bonds with a good mix of safety and income.
        The 10-year government bond in Germany yielded 0.132% Tuesday. Japan's 10-year bond yielded 0.32%.
        In recent weeks, some disappointing data has bolstered demand for Treasury debt as investors started to question whether the U.S. growth, the bright spot in the world, may be less robust than many expect.
        Some investors are concerned that a higher dollar driven by the prospect of the Fed's tightening policy is undercutting the competitiveness of U.S. exports as well as U.S. companies' earnings. The International Monetary Fund on Tuesday lowered its projection for the U.S. economic growth, citing a stronger dollar.
        Tuesday's report showed U.S. retail sales last month were largely driven by car purchases, which had increased 2.7%. Excluding autos, sales rose 0.4% in March, after holding steady in February and declining 1.2% in January.
        Fed funds futures, used by investors and traders to place bets on central-bank policy, showed Tuesday that investors see a 6% likelihood of a rate increase in June, unchanged from Monday and compared with 5% a month ago, according to data from CME Group.
        The odds of a rate increase in the September policy meeting fell to 29% from 30.6% on Monday.
        Not everyone is rooting for U.S. Treasury bonds. Some are betting that bond yields would rise in coming months once the Fed starts raising rates.
        Hedge funds and other investors with a short-term horizon have accumulated $20.7 billion in net short positions on Treasury-bond futures, in terms of 10-year equivalent notional value, for the week ended April 7, according to data from Cheng Chen, U.S. strategist at TD Securities.
        That was up from $13.2 billion of net shorts a week ago. A short wager bets bond prices fall and yields climb.
        Write to Min Zeng at min.zeng@wsj.com
        (END) Dow Jones Newswires

        April 14, 2015 10:02 ET (14:02 GMT)

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