TREASURIES-U.S. Treasury yields slide again as bond bears throw in the towel

(Updates prices)

LONDON/ SINGAPORE, July 8 (Reuters) – A rally in U.S. government bonds looked unstoppable on Thursday, with 10-year Treasury yields falling to their lowest levels since early-2021 as investors sensed cracks in the economic recovery and cooling risks of high inflation.

Yields were down as much as 7 basis points across the curve, as prices surged yet again, in a sign that investors positioned for higher borrowing costs were reversing course.

“The bears have given up and thrown in the towel,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

“The move in bond markets reflects a shift in market positioning and investors being caught on the wrong side of the trade.”

Benchmark 10-year yields slid to 1.25%, their lowest since February. The weekly fall is already 18 basis points, which if sustained would be the biggest in more than a year.

Twenty- and 30-year Treasury yields also fell to their lowest levels since February, extending Wednesday moves, and the gap between two-year and 10-year yields also hit its narrowest in five months.

The rally in prices, which has rippled out across bond markets worldwide, began in late June with no obvious trigger, occurring in the wake of a hawkish shift in tone from the Federal Reserve that was reinforced by minutes published on Wednesday.

“The message from the Fed remains that momentum continues to improve, necessitating a less dovish stance,” said analysts at TD Securities in a market note.

“This has made higher inflation less likely amid a more responsive Fed, potentially keeping the curve flatter for now.”

The Treasury yield slide weighed on euro zone borrowing costs too, with German 10-year yields falling another five bps on Thursday to minus 0.34% while French 10-year yields were on the cusp of going sub-zero for the first time since late-April.

Chinese bonds also posted their sharpest leap in almost a year after the cabinet surprised markets by floating easier monetary policy, highlighting concerns about some soft spots in the world’s second-biggest economy.

Ten-year Chinese government bond yields fell 6.6 basis points to drop below 3% for the first time since last August.

Source: Read Full Article