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US bond prices rise on terror worries

Longer-dated US Treasuries prices rose on Tuesday as worries that more terror acts would follow Friday's attacks in Paris spurred safe-haven demand for low-risk government bonds. An evacuation of a soccer stadium in Hanover, Germany because of a bomb threat and reports of a passenger trying to force open a door on British Airways flight to Boston left financial markets on edge, analysts said.

A source with the knowledge on the British Airways matter told Reuters that the passenger on the Boston-bound flight did not try to enter the cockpit. "There are a lot of reasons to be nervous and for a flight-to-safety (to bonds)," said Lou Brien, market analyst at DRW Trading in Chicago.

The bout of safe-haven bids, together with buying linked to exit of interest rate hedges on corporate bonds, caused a rebound in longer-dated bond prices, analysts said. Longer-dated Treasuries fell earlier on gains by Wall Street stocks and on an increase in domestic consumer prices that supported the view the Federal Reserve will raise interest rates in December. Disappointing data on US home builder sentiment and industrial output limited the early drop in bond prices.

Investors are likely waiting for further clues to whether the Fed will end its near-zero rate policy in four weeks, analysts said. Interest rates futures implied traders see a 68 percent chance of the Fed raising rates for the first time in nine years in December, according to CME Group's FedWatch program.

That view was supported by the government's report on October consumer prices, which increased 0.2 percent, matching expectations. The core CPI rate, which excludes volatile food and energy prices, rose 1.9 percent on a year-over-year basis, just short of the Fed's 2 percent inflation goal. "It's another hurdle we jumped over. Nothing today holds back the Fed" to raise rates in December, said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York.

In late afternoon trading, benchmark 10-year Treasuries were up 3/32 in price with a yield of 2.261 percent, down 1 basis point from Monday, while the 30-year bond was 15/32 higher in price, yielding 3.048 percent, down 2 basis points on the day. The two-year yield, which is sensitive to changes in traders' view on Fed policy, was unchanged at 0.851 percent.

Copyright Reuters, 2015


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