Stocks, bond yields fall on Greece worries, US data

30 May 2015 | Author: | No comments yet »

U.S. Government Bonds Rally on Data, Month-End Buying.

NEW YORK (Reuters) – Global equity markets and bond yields both fell on Friday, as data showed the U.S. economy contracted in the first quarter and as investors were unnerved by mixed signals from Greece’s debt talks. Just when it looks like the yield on the 10-year U.S. government bond is ready to shoot up like a bottle rocket on the Fourth of July, it comes crashing down to earthly levels near historic lows. Conflicting reports that Athens was close to clinching a reforms-for-cash deal with its creditors pushed German 10-year bond yields down 4 basis points to just under 0.50 percent. “It’s just Greece, Greece and Greece,” said David Madden, a market analyst at IG in London. “The lack of news in either direction tells you why traders are sitting on their hands.” U.S. debt yields also dropped, with the 30-year U.S. Treasury yield falling to its lowest level in three and a half weeks, at 2.84 percent, while benchmark U.S. 10-year yields hit a three-and-a-half-week low at 2.097 percent. But even with the Federal Reserve getting ready to pull the trigger on its first short-term interest rate increase since 2006, and pundits continually pointing out there’s no reason for bonds to be trading as if the world is coming to an end, bond investors keep buying U.S. government bonds — pushing yields down.

Prices rose as a sharp drop in Chicago-area factory activity fueled demand for safer bonds, while typical month-end purchases from money managers squaring positions supported Treasurys. “Factors in Treasurys in the month of May have been more technical in nature, but economic fundamentals are still somewhat positive for the market,” said Gary Pollack, head of fixed-income trading at Deutsche Bank’s private wealth-management arm. Consumer sentiment fell this month, a survey by the University of Michigan showed, while the Institute for Supply Management-Chicago Business Barometer unexpectedly fell in May. Higher rates would crimp bond prices, which move inversely to their yields. “The market simply doesn’t believe the data will be strong enough to let the Fed (boost rates) this year,” said Aaron Kohli, interest rate strategist at BNP Paribas in New York. Money managers who benchmark their bond portfolios to indexes have to align their positions when new bonds are worked into those benchmarks at the close of each month.

The dollar index was down 0.06 percent at 96.902 and remained on track for a rise in May, resuming a string of nearly uninterrupted monthly gains that began last July. Bond investors look for U.S. economics to regain control of the market in June, as long as eurozone bonds remain calm and ongoing negotiations between Greece and its creditors don’t strike a nerve. Fed Chairwoman Janet Yellen’s latest comments suggest the central bank is still on track to raise interest rates this year–an event that is keeping bond investors on edge.

But after the weak first-quarter performance, expectations have been pushed back to September and December, while some don’t even see a move until early 2016.

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