By Min Zeng
Treasury bonds pulled back on Tuesday as reports that the
European Central Bank is considering fresh ways to stimulate the
economy encouraged investors to sell haven bonds and buy riskier
assets.
In recent trading, the benchmark 10-year note was 10/32 lower,
yielding 2.220%, according to Tradeweb. Yields rise as prices
fall.
The ECB is considering buying corporate bonds, one day after it
had started buying covered bonds, which are backed by a pool of
loans such as residential mortgages, and are widely considered as
the safest type of debt that banks sell.
No specific plan had been discussed, one person familiar with
the matter said, and there is no timetable yet for when such a step
may be considered. Earlier, Reuters reported that the central bank
may decide on the matter as early as December and could begin
buying early in 2015.
The news "caused a risk on trade" which sent bond yields higher,
said Tom Tucci, head of Treasury trading in New York at CIBC World
Markets Corp. "I think this could be step one and step two will be
the eventual purchase of sovereign debt around year-end."
The eurozone's struggling economy and alarmingly low inflation
have been a main focus of global investors this month, which
sparked broad selloffs in European and U.S. stocks last week and
fueled strong demand for ultrasafe U.S. government bonds. At one
point last week, the 10-year Treasury note's yield fell to 1.87%,
the lowest level since May 2013.
Over the past few sessions, financial markets have shown signs
of stabilization from last week's turmoil and wild price swings.
Several reports out of the U.S. showed the world's No. 1 economy
continuing to improve and withstanding the impact from the
eurozone's woes.
Tuesday, data out of China also allayed fears that the world's
second-largest economy and a large buyer of many commodities would
post a sharp slowdown. The nation's economy grew by 7.3% during the
third quarter. While it was the slowest pace of growth in five
years, it was better than the 7.2% forecast by economists.
Traders said uncertainty over the global economy may continue to
generate price swings in financial markets and keep Treasury yields
at low levels. Some expect the 10-year note's yield to trade
between 1.85% and 2.35% in coming weeks.
"We expect Treasury market price action to remain relatively
choppy over the near-term as investors look to confirm growth
momentum," said Gennadiy Goldberg, a market strategist at TD
Securities in New York.
The 10-year note's yield has tumbled from 3% at the start of the
year and a year-long price rally has wrong-footed many investors
and strategists who expected bond yields to rise this year.
Investors and traders who had bet on higher bond yields scrambled
to close their positions last week.
Interest-rate strategists at Goldman Sachs Group Inc. expect the
10-year U.S. Treasury note's yield to end this year at 2.5%, down
from 3% recently forecast. J.P. Morgan Chase & Co. expects the
10-year note's yield to end this year at 2.45%, down from 2.7%
earlier estimated.
For the moment, the U.S. economy has fared better compared with
the eurozone. The health of the U.S. economy is a key factor in
determining the timing of the first interest-rate increase from the
Federal Reserve.
Worries over global growth have pushed traders and investors to
dial back the timing of a rate increase. The interest-rate futures
market linked to the Fed's rate policy outlook expects the central
bank to start raising rates in late 2015, if not later.
Bond traders and investors have dialed back expectations for the
timing of the first interest-rate increase from both the Federal
Reserve and the Bank of England. Some investors now believe policy
makers may wait until the second half of 2015, if not longer, to
raise short-term interest rates.
Write to Min Zeng at min.zeng@wsj.com