US Treasury yields fell to their lowest levels in multiple weeks on Wednesday with 5-year note yields hitting their lowest since December 8 as a flight to safety and technical positioning encouraged investors to buy US government debt. Yields on 7-, 10- and 30-year Treasuries fell to their lowest levels since mid-January.
Buying has picked up this week as analysts say the market is reducing its expectations of the number of forthcoming interest rate hikes from the US Federal Reserve and of fiscal stimulus policies and tax cuts from the administration of President Donald Trump.
Uncertainty about European politics also sent a wave of overseas buyers to Treasuries, which offer a sizeable yield premium over government bonds from countries in Europe.
"Across the developed world the US is still pretty much the high-yielding choice and I would argue the US economy is by-far the strongest of those choices," said Dominic Pappalardo, director of the taxable portfolio management team at McDonnell Investment Management in Oakbrook, Illinois.
"If you're in much of Europe or Asia where you have rates near zero as well as a tremendous amount of economic uncertainty, so getting 2-1/2 percent on your money is really, really attractive." Recent polls have shown German Chancellor Angela Merkel falling behind a candidate from the country's Social Democrats in this year's elections. Polls have also suggested France's Marine Le Pen, who has championed pulling the country out of the European Union, is gaining steam.
"People are saying, 'I don't know what's going on over in Europe and I want to get into something safer, most notably US Treasuries,'" said Stan Shipley, a strategist at Evercore ISI. Shipley also noted that benchmark 10-year note yields have drifted below their 50-day moving average and a couple key technical levels, increasing buying. Further, there has been an absence of positive data on the US economy to offset the flight to safety, Pappalardo said. Yields pared their losses modestly after a weak 10-year note auction, but remained lower. The 10-year note was last up 9/32 in price to yield 2.358 percent.