Investors continued their pursuit of the safety of U.S. Treasuries sending the yield on the 10-year bond lower for the sixth session in a row as credit markets incorporate the recent rate hesitation of the Federal Reserve and the Bank of Japan.
The return on the benchmark 10-year Treasury fell 3 basis points to 1.5564 on Tuesday bringing its losses to 15 points since the open at 1.7048 on September 20th and 19 points since the three month the three month high at 1.7498 on September 13th. Bond prices move in the opposite direction of yields.
One reason for the flight to safety this week has been the plunge in Deutsche Bank stock which shed 7 percent in Europe yesterday. The shares of the largest German bank closed at 10.602 euros on Tuesday, their all-time low. German media reported that Chancellor Angela Merkel, already in deep electoral trouble over her government’s immigration policy, would not offer assistance to the bank, whose derivative portfolio has created market concern adding to its regulatory issues.
The 10-year yield had been on a steady rise since the early July low at 1.366 percent. The Federal Reserve had indicated that conditions were ripening for its long expected second increase in the Fed Funds rate in a decade. The central bank broke that drought last December with the first hike since June 2006.
On August 26th at the annual Fed conference in Jackson Hole Wyoming, Fed Chair Janet Yellen seconded by two other Fed governors strongly hinted that rate could rise at the September 21st meeting.
But in the event the Fed decided, with three dissenting votes to put off a rate hike, most likely until December at the earliest. The next FOMC meeting on November 2nd is just six days before the U.S. Presidential elections and almost unthinkable date for a hike.
The Bank of Japan also elected to keep it’s until lose monetary policy while announcing a zero rate target for its 10-year government bond.
Chief Market Strategist
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