Treasury yields fall

US Treasury yields fell on Friday as European government bond yields dropped to record lows, a day after the European Central Bank said it would launch new stimulus in an effort to boost sagging regional growth and stave off deflation. The ECB said it would buy 60 billion euros ($67 billion) of assets a month from March, focusing mainly on sovereign bonds. Bond purchases will cover maturities of up to 30 years - longer than many in the market had expected.
"We're trading higher in sympathy with what's going on in Europe," said Ian Lyngen, senior government bond strategist at CRT in Stamford, Connecticut. "The (quantitative easing) program is buying further out the curve than initially anticipated." Long-dated bonds led the US rally and the yield curve flattened as investors reached for higher yields. Treasuries are attractive as they offer significantly higher yields than comparable European debt.
Benchmark 10-year notes gained 12/32 in price to yield 1.83 percent, far higher than comparable German debt yields that fell to record lows of 0.304 percent on Friday. Thirty-year bonds gained 26/32 in price to yield 2.40 percent, down from 2.47 percent late on Thursday. The yield curve between five-year notes and 30-year bonds flattened to 106.9 basis points, from 107.6 basis points late on Thursday. "The US market can't go down. There are too many flows into US Treasuries because we're the highest-yielding currency there is," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York.
The ECB was widely expected to launch new bond purchases, but the scale of the program announced by President Mario Draghi caught some investors by surprise. "Investors underestimated what he was going to do," di Galoma said. The ECB said it would purchase sovereign debt from this March until the end of September 2016, despite opposition from Germany's Bundesbank and concerns that the stimulus could allow spendthrift countries to slacken economic reforms. The next major focus for the market is the Federal Reserve's January 28 policy announcement at the conclusion of a two-day meeting.