Benchmark 10-year Treasury yields slid on Wednesday but came off 15-month lows reached overnight as investors remained focused on central bank dovishness globally. New Zealand's central bank unexpectedly said its next move in interest rates was likely to be a cut, abandoning its neutral stance at a policy review.
The European Central Bank could further delay an interest rate increase and may look at measures to mitigate the side-effects of negative interest rates, ECB President Mario Draghi said on Wednesday. Germany, meanwhile, sold debt with a negative yield for the first time since 2016.
"There's two conflicting stories here. One is that the Fed and global central banks are keeping rates on hold, and that's creating a very supportive backdrop," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
"The other story is they are doing this because they expect weakening and that the next move from here is a global recession," Goldberg said. Treasury prices have rallied strongly since the Federal Reserve last Wednesday dramatically abandoned projections for any interest rate hikes this year. Gains in bond prices eased on Wednesday after data showed that the US trade deficit dropped more than expected in January, and as US stocks rose.
Ten-year Treasuries were last up 7/32 in price to yield 2.389 percent, after falling to 2.352 percent overnight, the lowest since December 2017. The yield curve between three-month bills and 10-year notes extended its inversion to nine basis points, before retracing back to seven basis points. The inversion, if it persists, could indicate that a recession is likely in one to two years.
The Treasury Department will sell $41 billion in five-year notes on Wednesday, the second sale of $113 billion in coupon-bearing supply this week.
A $40 billion auction of two-year notes on Tuesday met with string demand.
The Treasury will also sell $32 billion in seven-year notes on Thursday.
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