U.S. Treasury bond exchange traded funds continued to strengthen, with yields on benchmark 10-year U.S. government notes touching an 11-month low, amid heightened concerns over global growth.
Over the past three months, the iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF) gained 4.1% and iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) rose 5.4% as yields on benchmark 10-year Treasury notes dropped down to 2.66% after reaching as high as 3.22% back in October.
“If 2.64 percent is broken to the downside, look for a move to 2.49 or 2.48 percent on 10-year yields as selling pressure continues on the global equity complex,” Tom di Galoma, managing director at Seaport Global Holdings, said in a note.
Treasury bonds strengthened following weak economic data out of Asia and Europe while the partial shutdown of the U.S. government continued.
“Chinese PMI came in weaker than expected and gave a risk-off tone to global markets. There are now mounting concerns about global growth,” Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald, told Reuters.
China’s factory activity weakened for the first time in 19 months over December due to the China-U.S. trade war, with weakness also spilling over to other Asian economies.
Meanwhile, Eurozone manufacturing activity only inched higher at the end of 2018 in a broad slowdown, and observers see few signs of optimism in the new year.
“There’s a demand for safe-haven bonds. You see that in U.S. Treasuries, and you see it in German bunds, though that’s in a catch-up, and Japanese 10-years are negative,” Lederer added.
Looking ahead, market observers will be looking out for U.S. manufacturing survey on Thursday, payrolls data on Friday and U.S. earnings season later this month, which is widely anticipated to reveal slowing corporate profits over the past three months.
Furthermore, the markets are anticipating a lower likelihood that the Federal Reserve will continue to hike interest rates in the weaker economic environment. Fed funds futures, which many use to bet on the direction of Federal Reserve policy, early Wednesday showed an 87% probability policy makers will end the year with interest rates at or below current levels, according to the Wall Street Journal. In comparison, futures prices were showing a 90% probability back in November that rates would end the year higher in 2019.
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