By Joseph Adinolfi, MarketWatch
ECB stimulus pushes 10-year bund yield to another record-low
close
NEW YORK (MarketWatch)--The 10-year Treasury yield recorded its
fourth-straight weekly decline Friday as the introduction of a
massive stimulus program by the European Central Bank sent
investors piling into U.S. debt on the expectation that U.S. yields
will remain higher for the foreseeable future.
The 10-year Treasury yield was down nine basis points to 1.799%
Friday after closing higher Thursday. Meanwhile, the two-year yield
was down 3.3 basis points to 0.490%. The two-year yield finished
the week higher after three weeks of declines.
Yield for the 30-year Treasury closed 10.3 basis points lower to
2.367%, its lowest-ever closing level.
The spread between two-year and thirty-year Treasurys narrowed
by six basis points in the past week after it had widening
dramatically during the first two weeks of the year.
David Ader, TK, said that widening interest-rate differentials
between U.S. debt and the rest of the world have made Treasurys
"all that more attractive against just about anyone else."
"...There are only two countries in Europe that yield more than
the U.S.; Portugal and Greece. The U.S. is rated AA+ and so
Portugal's positive spread of 59 [basis points] looks rather
miserly for a BA1/BB+ rated country," Ader said.
In Europe, government bond yields fell to all-time lows this
past week as ECB President Mario Draghi announced a larger stimulus
program than the market had expected.
The yield on the German 10-year bund finished the session down
8.2 basis points to 0.316%, its lowest closing level ever. It had
hit an intraday low of 0.305% in midmorning trade.
On Thursday, Draghi announced that, beginning in March, the ECB
will buy EUR60 billion of debt, including government bonds, in an
effort to stimulate economic growth in the eurozone. The program of
quantitative easing will continue through September 2016, and the
door has been left open for more.
Seven other European 10-year bonds recorded their lowest closing
levels ever Friday.
All together, the ECB has committed to buying about EUR1.2
trillion in bonds, overshooting the market's expectation of, at
most, EUR1 trillion. Now, investors are buying up bonds faster than
many analysts had expected because they believe prices will rise
even higher in a month when the ECB starts draining a massive
amount of liquidity from the market.
Tom di Galoma, head of rates and credit trading at ED & F
Man Capital Markets, said he had expected eurozone bonds to sell
off after the announcement as the market adjusts for the higher
inflation that typically results from a central bank injecting
billions of euros into the financial system every month.
"The general feeling that I get is that investors were expecting
a smaller package from the ECB and then the market would somehow
selloff," di Galoma said.
But instead, bonds continued to move lower after the central
bank's decision. Di Galoma said we're likely to see negative rates
for the 10-year bund in the near future.
"You're seeing Swiss rates at negative 29 basis points at the 10
year--I don't know why German rates can't go close to zero
themselves. You've already got the German two-year, three-year and
five-year all negative [yields] and the seven-year is at seven
basis points," di Galoma.
Bond yields move inversely to prices, rising as prices fall.
Here's what Treasury investors were watching Friday:
Subscribe to WSJ: http://online.wsj.com?mod=djnwires