NEW YORK: US long-dated Treasury debt yields fell to three-week lows on Tuesday on concerns about ongoing problems at Deutsche Bank, Germany's largest lender, which could again delay the next interest rate hike by the Federal Reserve.
Deutsche Bank, whose stock has shed over 10 percent in the last two days and more than 50 percent so far this year, is fighting a $14 billion demand from the US Department of Justice to settle claims it had mis-sold mortgage-backed securities.
While the Fed in its policy statement last week suggested the likelihood of a US rate increase in December, some analysts said that could be derailed if Deutsche Bank's survival is threatened by the US lawsuit, particularly given how the Fed has been sensitive to overseas developments.
"There has been more pressure on German Bunds, which has spilled over to the US curve on concerns about Deutsche Bank," said Bruno Braizinha, interest rates strategist at Societe Generale in New York. "That has prompted a risk-off move."
But Braizinha pointed out that the rally in Treasuries has gained momentum since the Fed, at its most recent monetary policy meeting last week, kept interest rates unchanged and came out with a dovish statement.
US 10-year note yields, which move inversely to prices, fell to 1.546 percent, the lowest since Sept. 8, while 30-year bond yields dropped to 2.272 percent, a three-week trough.
Overall, long-dated yields have fallen six straight sessions, while two-year notes have declined for four consecutive days.
In late trading, US 10-year Treasury notes were up 8/32 in price, yielding 1.559 percent, down from 1.589 percent late Monday.
US 10-year yields briefly edged higher after a US consumer confidence index for September beat expectations, notching its highest since August 2007.
US 30-year bonds rose more than a point in price, yielding 2.276 percent, down from Monday's 2.327 percent.
On the front end, US two-year notes were flat for a yield of 0.750 percent, down from 0.759 percent late on Monday.
A lackluster $34 billion auction of US five-year Treasuries failed to dampen the bond market's rally.
The five-year offer yielded 1.129 percent, more than the 1.125 percent the markets had expected just prior to the 1 p.m. EDT deadline. There were about $81.3 billion in bids for a soft 2.39 bid-to-cover ratio, down from 2.54 previously and a little under the 2.43 average.
Indirect bidders, consisting of foreign central banks, took 61.4 percent, less than August's 68.7 percent.
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