Bonds rise on renewed European bank jitters

By Ian Chua

LONDON (BestGrowthStock) – U.S. Treasury debt prices rose in Europe on Tuesday with the 30-year bond climbing more than one full point in price as renewed concerns about the health of European banks fueled demand for safe-haven assets.

A Wall Street Journal report stoked fears about the viability of European banks by highlighting the weakness of euro zone stress tests earlier in the year, knocking European bank stocks lower and spurring wider share market losses.

“This has clearly put pressure on equities and given a boost to Treasuries,” said Nick Stamenkovic, strategist at RIA Capital Markets.

“But it is just a temporary support factor. The key issue for the market is how much the U.S. economy is going to weaken and a lot of bad news is already priced in.”

Last Friday, U.S. Treasury debt prices fell after the influential payrolls report showed a smaller-than-expected fall, prompting an unwinding of flight-to-safety flows.

U.S. financial markets were shut on Monday for the Labor Day holiday.

The 30-year bond rose more than 1 full point in price to yield 3.720 percent, down from a session high of 3.789 percent, while the 10-year bond climbed 18/32 in price to yield 2.650 percent, down from 2.699 percent earlier.

“Asia real money accounts are showing up at the back of the curve. Every time we get to levels around 3.75 percent on the bond, there is pretty decent buying and we’re seeing it again this morning,” a bond trader said.

“The European bank story is probably helping the market as well,” he added.

The two-year yield was only slightly lower at 0.498 percent, flattening the 2/10-year yield curve to 215 bps from around 220 bps late on Friday in New York.

With the Federal Reserve pledging to keep its benchmark rate at a record low near zero, the rate-sensitive two-year note yield is seen anchored at the current level near 0.5 percent, driving investors down the curve.

Investors also tend to favor the higher yields that longer-dated bonds offer in a low growth, low inflation environment.

On supply, the Treasury will sell $33 billion in three-year notes later in the session, followed by $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday.

U.S. stock index futures all fell, signaling a lower open for Wall Street.

Bonds rise on renewed European bank jitters