US Treasury yields fell broadly on Thursday to their lowest levels since late February as declining oil prices and global growth fears underpinned bond prices. The fall in yields was also due to a reversal in investors' risk appetite from Wednesday, analysts said.
After a rally that saw crude futures rise more than 5 percent and the S&P 500 index closing more than 1 percent higher, markets reversed course on Thursday. Oil was down more than 2 percent and Wall Street opened broadly lower. "The little bit of weakness in oil is certainly part of the equation there, and some of the negative correlation between equity and Treasury bond performance is still in place," said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management in Horsham, Pennsylvania.
Minutes from March's Federal Open Market Committee meeting released Wednesday highlighted concerns about the Federal Reserve's limited ability to tackle a global economic slowdown, reducing the odds of a rate increase this year. "It's more about global risks than domestic developments," said Collin Martin, director of fixed income at Schwab Center for Financial Research in New York.
The Fed had forecast raising rates four times in 2016 when they tightened for the first time in December, but weak readings on various economic indicators since then have lowered inflation expectations and pushed back the Fed's expected hike schedule. Penn Mutual's Heppenstall also noted investors' search for safety was also seen in the currency market, where the dollar fell to 17-month lows against the yen in early trading.
The yen has surged 9.5 percent against the dollar this year despite the Bank of Japan instituting negative interest rates on some deposits in its latest effort to stimulate lending and investing.
While the yen appeals to nervous investors, the negative yields on Japanese government debt do not. The yield premium on US two-year Treasuries over their Japanese counterpart shrank to 94 basis points, hovering at its tightest in about six weeks. The renewed bids for bonds pushed most Treasury yields to their lowest levels in six weeks. Benchmark 10-year Treasuries rose 12/32 in price to yield 1.711 percent, their lowest since March 1 and down over 3 basis points from late on Wednesday.
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