US 30-year bonds edge up, yield curve flattens

SINGAPORE: US 30-year Treasuries edged higher in Asian trading on Monday, continuing their recent outperformance of other asset classes that has been driven by global market volatility and as investors seek higher yields at the long end of the yield curve.

Thirty-year bonds rose around 8/32 in price to yield 3.383 percent, down around 1 basis point from late US trading on Friday.

The five-year/30-year yield spread dips to 246.7 basis points, down from around 250 basis points late on Friday. The five-year/30-year yield spread has shrunk by roughly 32 basis points over the past week.

Many investors have recently put on yield curve flattening positions, for example in the five-year/30-year as well as the seven-year/30-year sectors, said a trader for a US financial institution in Tokyo.

"It really seems like a play to get as much yield as they can. It's a hard one to fight when all these accounts need to grab as much yield as possible," the trader said.

Benchmark 10-year notes dipped 5/32 in price to yield around 2.085 percent, up around 2 basis points from late US trade on Friday. The 10-year yield had dipped to around 1.98 percent last week, its lowest in at least 60 years.

"We've seen some flows. Fast name accounts, hedge funds are selling in the 10-year sector this morning," the trader for a US financial institution in Tokyo said.

Worries that the US economy may slip into recession, and concerns about the euro zone's sovereign debt crisis have pressured equities and stirred demand for Treasuries in recent weeks, although Treasuries have run into some profit-taking after the 10-year yield dipped below 2 percent last week.

Copyright Reuters, 2011