By Min Zeng
Investors piled into U.S. Treasury bonds on Friday as the latest
economic reports out of Germany and the U.S. raised concerns over
the pace of global economic growth.
The buying sent the benchmark 10-year note's yield toward the
lowest point of the year. The yield on the 30-year bond fell to
near a 13-month low.
In late afternoon trading, the benchmark 10-year note was 11/32
higher, yielding 2.469%, according to Tradeweb. The 30-year bond
was 1 1/32 higher, yielding 3.244%.
Bond yields fall as their prices rise.
The 10-year note's yield fell from 2.485% at the end of last
week. The yield was 3% at the start of January.
A closely watched gauge of business sentiment in Germany, the
euro zone's biggest economy, dropped for a third straight month
amid tensions between Ukraine and Russia. Geopolitical concerns
have risen following last week's downing of a Malaysia Airlines
jetliner in Ukraine, which has sparked a selloff in stocks and
bonds in Russia.
Meanwhile, in the U.S., demand for durable goods rose by a
bigger-than-forecast 0.7% in June. But orders fell 1% in May,
revised from an earlier estimate of a 0.9% decline. Core capital
goods shipments, a factor economists tracks to predict the economic
growth for the second quarter, fell 1.0% in June.
Economists from several big banks including Goldman Sachs Group
Inc., J.P. Morgan Chase & Co. and Morgan Stanley cut their
expectations for the U.S. economic growth during the second quarter
following the release. The International Monetary Fund earlier this
week expected the U.S. economy to grow at 1.7% for 2014, down from
2% previously forecast.
"Global growth [is] still unclear," and investors want to "play
it safe" ahead of the weekend, said Larry Milstein, head of
government and agency trading at R.W. Pressprich & Co. in New
York. "The conflict between Ukraine and Russia puts more pressure
on European growth due to the sanctions and the European need for
Russian oil."
Mr. Milstein said the 10-year Treasury note's yield could fall
to as low as 2.25% if it breaks below 2.4%--which marks the
intraday low of 2014 made during the May 29's session.
The German data boosted speculation that the European Central
Bank may add more monetary stimulus in coming months to support the
economy. The prospect of further monetary stimulus encouraged
investors to buy government bonds in the euro zone, sending bond
yields lower broadly.
Friday, the 10-year German government bond's yield fell to
1.147%. The yield on Spain's 10-year government bond fell to 2.548%
and the yield on Italy's 10-year government bond declined to
2.722%.
U.S. Treasury bonds offer superior yields compared with their
counterparts in Germany, attracting buyers seeking relative value.
This has been one of the main factors pushing down Treasury yields
this year.
"Concern over the trajectory of global growth, ongoing global
geopolitical turmoil, and U.S. yields being substantially higher
than its global counterparts," which all contributed to the rally
in Treasury bonds, said Mary Ann Hurley, vice president of trading
in Seattle at D.A. Davidson & Co.
Analysts and traders said uneven global growth continues to
support the Federal Reserve's stance of being patient in raising
official interest rates. Economists widely expect the Fed won't
start hiking the policy rate--the fed-funds rate--until the middle
of next year.
The Fed's next policy meeting is scheduled next week. Economists
expect the Fed to announce further reduction in its monthly bond
buying but would continue to keep interest rates near zero.
Interest rate strategists at Goldman Sachs, Morgan Stanley and
J.P. Morgan still expect the 10-year Treasury note's yield to rise
to 3% at the end of the year. They believe the U.S. growth would
gain traction and demand for haven bonds will diminish.
Ms. Hurley says that the 10-year yield could stay below 3% this
year "unless the economy has a sharp growth acceleration."
Write to Min Zeng at min.zeng@wsj.com
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