US Treasuries rose on Wednesday as stock losses revived investors' appetite for safe-haven government debt. Lower oil prices also hinted at slower global growth ahead, a development that would extend the life of accommodative monetary policy. Major stock market indexes each fell about 1 percent. Front-month US oil futures fell more than 4.7 percent to $98.96 per barrel. The Reuters/Jefferies CRB index, a commodity price gauge, fell 3 percent.
"Lower stock and commodity prices and a strong 10-year auction helped bonds," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. The price cuts in oil and other commodities cooled some inflation fears and made investors more willing to buy fixed-income securities, whose value is hurt by inflation. Unexpectedly large oil inventory numbers signalled "that domestic demand for oil may be faltering and also that the global picture is not necessarily strong," said Pierre Ellis, senior economist at Decision Economics in New York.
Meanwhile, China's 5.3 percent inflation in April could prompt its government to step up efforts to further slow the world's second-biggest economy. "More aggressive (monetary) tightening in China would slow their economy and if they slow down, everybody slows down," Ellis said. The retreat in commodity prices seemed to validate Federal Reserve Chairman Ben Bernanke's assertion a month ago that US inflation was primarily being driven by rising commodity prices globally and would be "transitory."
At that point, the Fed chief's comments contrasted with those of some other US central bank officials who argued the time was coming for the Fed to start tightening monetary policy. On Wednesday, Cleveland Fed President Sandra Pianalto said she saw little inflation pressure and the current level of monetary accommodation was appropriate. The prospect of restrained inflation for years to come made investors more willing to buy long-term US Treasuries.
The Treasury's $24 billion 10-year note auction drew solid demand, and the 10-years were also in demand after the sale, sending their yields down to 3.16 percent from 3.22 percent on Tuesday. Thirty-year bond prices also rose, even though dealers often like to trim prices before an auction. The Treasury plans to auction $16 billion in 30-year bonds on Thursday in the last of its three refunding auctions this week. Those bonds yielded 4.32 percent in when-issued trade.
Benchmark yields last week dipped to 3.13 percent, marking the lowest level since early December. Those yields have been falling steadily since early April, driven by some evidence the economic recovery may be sputtering, despite the Fed's bond purchase program aimed at spurring the recovery.
The Fed on Thursday bought $7.68 billion of Treasuries maturing November 2016 through April 2018. The US central bank announced its Treasuries purchase schedule up to the middle of June, even as it prepares to wind down its latest $600 billion bond-buying program by mid-year.
Treasuries trade was also still being coloured by worries over debt problems in Europe, with EU finance ministers set to discuss Greece's debt crisis next week in some speculation the country will need a new rescue deal. Two-year notes rose 2/32 higher in price, their yields easing to 0.56 percent, down from 0.59 percent late on Tuesday.