NEW YORK: US Treasury prices rose on Monday after China's stock market experienced its deepest slide in eight years, which unsettled investors globally and sent them to the relative safety of US government bonds. Longer-term Treasury prices improved, while short-term prices were mixed. "The overnight action with the flight to quality in China, and Europe as well, is a continuation of a larger move in the last six to eight trading sessions of a relentless flattening of the yield curve," said Edward Acton, US Treasuries strategist at RBS Securities in Stamford, Connecticut.
The interest rate spread between five-year and 30-year US Treasuries narrowed to around 133 basis points late last week, its smallest margin since May 1 before widening slightly to 136.80 basis points on Monday.
Acton said that Chinese purchasing managers data late last week showing a decline exacerbated real economic growth worries in addition to the destabilizing impact of the drop in equities prices despite the government's emergency measures.
"It is not a risk-on catalyst," he said.
Expectations that the US Federal Reserve will raise interest rates this year, perhaps as early as September, have also underpinned long-term Treasuries.
Investors will be closely watching the release of the Fed's statement on Wednesday at the end of its two-day monetary policy meeting.
"As much as the Fed has said they want to tighten in 2015, that has all been contingent upon the realization of a forecast that just doesn't look realistic at this point, based on inflation and recent weakness in commodity markets," said Tom Simons, money market strategist at Jefferies & Co. in New York.
Benchmark 10-year US Treasuries traded up 16/32 of a point in price in late US trading, driving the yield, which moves in the opposite direction, down to 2.21 percent, its lowest level since June 9.
The 30-year US Treasury rose more than one full point in price, edging to its session high after a stronger-than-expected 3.4 percent rise in June US durable goods orders.
The 30-year bond traded up 25/32 of a point in price, pulling the yield down to 2.93 percent.
Buying in the Treasuries market began after Chinese stocks slid more than 8 percent despite an unprecedented government rescue plan to prop up equity valuations.
That raised serious concerns, after three weeks of relative calm, that Beijing's efforts to stave off a deeper crash will fail.
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