US Treasurys wobble as stocks remain volatile

The yield on the benchmark 10-year German bond known as the bund, inched 0.7 basis point lower to 0.588%.

Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the US economy.

Investors had piled into these high-quality government debt markets Friday after a smaller-than-forecast jobs gain in September cast doubt over the likelihood the Federal Reserve will raise interest rates before the end of the year. Speculation has been growing that both central banks may need to expand their bond buying program in the months ahead.

The state raised just P16.41 billion in yesterday’s auction out of the planned P20-billion borrowing, with the Bureau of the Treasury (BTr) again rejecting a few bids as investors sought higher yields for the shorter-dated securities.

Foreign demand for newly issued US government debt surged Wednesday afternoon during an auction of $21 billion in 10-year notes, which got the largest percentage of so-called indirect bidding in six and a half years, according to data from CRT Capital. It closed at HK$12.60 yesterday.

“The auction committee decided to make full award for the 182- and 365-day Treasury bills but capped the 91-day security at 1.491%”, the Treasury said in a statement issued after yesterday’s auction. On Thursday, it was near 2.05%. A slower pace of rate increases seems to be a view shared by analysts, who are cutting their forecasts for Treasury yields.

US government debt prices held lower on Thursday after the Treasury’s auction of 30-year bonds met solid demand.

Until Fed officials definitively take a 2015 rate hike off the table, the risk remains that the stock and futures markets are going to suffer a painful disappointment later this year.

With global growth faltering, across world, the outlook supported by weaker than expected economic releases in japan and in Germany, HSBC has lowered its expectation for future yields. The yield fell as low as 1.6% before the so-called taper tantrum in mid-2013 as the Fed prepared to end monthly bond purchases.

According to Bloomberg, the median strategist’s forecast is for the 10-year yield to rally to 2.9% by Q3 2016 and 3.0% by Q4 2016. In the last three months, three- to seven-year papers were made available. “But there has not been a lot of change in global growth and inflation”.