US Treasuries steadied on Thursday but yields remained under pressure as investors held back ahead of Friday’s crucial employment report.
Activity was muted as the market digested new economic data but investors largely sat on the sidelines after Wednesday’s sharp slide and ahead of the closely watched US payrolls data. About 180,000 jobs are expected to have been created. A stronger reading could prompt a sell-off, pushing yields higher. But given the volatility of the figures, few investors were prepared to bet against a weak report sparking a fresh round of bond buying.
By late trade in New York the 10-year yielded 3.888 per cent, down 0.4 basis points. The two-year yield rose 3.2bp to 3.516 per cent. At 37.2bp, the spread between the two was the narrowest in four years.
Eurozone government bond yields remained at record lows in spite of a denial by Jean-Claude Trichet, president of the European Central Bank, that the ECB had considered cutting interest rates at its policy meeting. The bank left interest rates unchanged at 2 per cent.
The 10-year German bund yield slid to a record low of 3.210 per cent amid widespread uncertainty about the eurozone’s economic policy after both French and Dutch voters rejected the EU constitution in separate referendums. This is thought to bode ill for economic growth, helping boost bond prices and leaving yields lower.
UK gilt yields were little changed as investors braced for the US labour report. Ten-year gilts were yielding 0.7bp lower at 4.237 per cent after falling to their lowest level since July 2003.
Japanese government bond yields bounced off 15-month lows after a Bank of Japan official signalled the bank was “uncomfortable” with the recent bond rally.
Atsushi Mizuno, one of the bank’s nine policymakers, also suggested the BoJ could drop the level of reserves it makes available to banks.
Strategists said the comments were designed to steady the market after the recent rally, which has pushed yields on 10-year paper to a low of 1.195 per cent from a peak of 1.535 per cent in March.
On Thursday, a sale of Y1,900bn ($17.5bn) in new 10-year paper attracted strong demand, with bids worth 3.56 times the paper on offer. The new bonds carried a 1.3 per cent coupon. In the secondary market, 10-year yields ended the day up 0.5bp at 1.22 per cent.