Prices of US Treasuries surged on Wednesday after President Barack Obama won re-election, lifting views that monetary policy could stay loose for years amid moderate economic growth. A rout in the stock market and continuing worries in Europe also boosted support for safe-haven US debt, with Greek lawmakers nearing a vote on yet another deeply unpopular package of austerity measures despite massive protests.
Treasuries began rallying late on Tuesday as vote counts in the US election increasingly pointed to an Obama victory. Less than a full day after Obama's victory speech in Chicago, the benchmark 10-year Treasury note was up 32/32, its yield falling to 1.641 percent from 1.75 percent on Tuesday.
"The Treasury market recognises that we're back to the fundamentals we had before the election," said Dan Heckman, chief fixed income strategist at US Bank Wealth Management, with approximately $80 billion in assets under management. "Unemployment is the key to where the bond market will be and we have a very high unemployment rate that is not where the Fed wants it to be, so the Fed will remain accommodative and Treasuries are rallying on all that," he said.
Debt-plagued Greece also drove sentiment, and Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York, called the situation paramount. Worries over Greece outweighed an attempt by European Central Bank chief Mario Draghi to soothe markets. Draghi said on Wednesday that the bank's new bond-buying program allows for unlimited interventions in sovereign debt markets and should dispel concerns about a euro zone break-up.
"The need for Greece to approve some tax increases and spending cuts is getting more attention than the comments" by Draghi, Cloherty said. With the US election resolved, investors turned their eyes to the what has become known as the "fiscal cliff," a $600 billion package of tax hikes and spending cuts set to kick in at the start of next year.
Analysts have warned that the shock of going over that cliff could tip the country back into recession, unless Congress agrees on a compromise. Until that middle ground is reached, yields for Treasuries are likely to stay low, said Peter Hayes, head of BlackRock's municipal bonds group.
"When the market begins to sniff out the possibility of a compromise, then you'll see a shift in the dynamics of the market," he said. "Treasury rates probably would back off and then there'd be a migration back toward risk assets." Until monthly job growth starts to top 200,000, "a very slow-growing economic environment" will also benefit safe-haven US debt, said US Bank Wealth Management's Heckman. Traders said the rally was unlikely to push 10-year bond yields below the 1.60 percent mark, a level that has held since early September. In addition, the Treasury sold $24 billion in 10-year notes at a high yield of 1.675 percent on Wednesday.
Comments
Comments are closed.