US Treasury debt prices rallied on Friday as investors stocked up on the ultra-safe securities in preparation for a weekend of potential financial instability in Europe. The worries over Europe were sparked by the resignation of European Central Bank Executive Board Member Juergen Stark. The ECB confirmed a Reuters report that said Stark was quitting. The report said he was leaving because of a conflict over the bank's bond buying program.
"There's the perception in the market that there's a disconnect between the world of politics and the markets, and Stark's resignation might be highlighting that" said Fidelio Tata, head of US rates strategy at Societe Generale in New York. "With all the events in Europe taking place no one wants to be short Treasuries over the weekend," he added.
Stocks plunged on Friday, losing over 2.5 percent and bolstering the safe-haven draw of US government debt. "The Stark resignation just kind of raises an eyebrow at a time when there's already concerns about what's going to happen next," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. A debt swap meant to help Greece avoid default and win time to repair its tattered public finances hung in the balance Friday, with expectations of take-up by private creditors slipping amid fierce European pressure on Athens.
"There is a real danger that a European default or bank failure would lead to a global banking crisis akin to that seen after the fall of Lehman Brothers," said Paul Dales, US economist at Capital Economics in Toronto. Benchmark 10-year notes were trading 17/32 higher in price to yield 1.92 percent, down from 1.98 percent late Thursday. Benchmark yields touched 1.896 percent, marking the lowest since at least World War Two.
The yield on US 10-year Treasury Inflation-Protected Securities closed below zero, suggesting some traders are expecting almost no real US economic growth in the next decade. Thirty-year Treasury bonds were trading 1-4/32 higher in price to yield 3.25 percent, down from 3.31 percent late Thursday.
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