U.S. Treasury yields tumbled on Wednesday, with 30-year yields approaching record lows, on growing fears over a global economic downturn and bets the Federal Reserve would have to pick up its pace of interest rate cuts to counter recession risks.
A closely watched U.S. recession indicator, the premium on three-month Treasury bill rates over 10-year Treasury yields elevated to its highest level since March 2007.
Bond yields fell around the world with German yields hitting record lows in negative territory. That came in the wake of several Asian central banks lowering their key interest rates to address growth concerns stemming from the escalating trade war between China and United States.
Rate cuts in New Zealand, India and Thailand touched off a flood of buying of longer-dated bonds in Asia, which persisted into European and U.S. trading, analysts said. "The delivery of rate cuts from central banks overseas added fuel to the rally," said Jonathan Cohn, interest rate strategist at Credit Suisse in New York.
However, investor demand at an auction of $27 billion of 10-year government notes turned out softer than expected, selling at a yield of 1.670%, the lowest in three years. The 10-year note sale is part of this week's $84 billion quarterly refunding which is expected to raise $26.7 billion in cash for new federal spending.
On the open market, the yields on benchmark 10-year notes were 2.80 basis points lower at 1.711%. They had fallen earlier to 1.595%, the lowest since October 2016. The prices on 30-year or long bonds at one point were up as much as 3 points, for a sixth day of gains.
Thirty-year yields were down 3.60 basis points at 2.234% after it hit 2.123% earlier, which was not far from an all-time low of 2.089% set in July 2016, according to Refinitiv data.
U.S. yields backed away from their earlier lows on the soft 10-year auction and Wall Street recovering from its initial losses in late trading, curbing the safe-haven bids for bonds. Interest rates futures suggested traders are building bets the Fed would cut interest rates three more times by year-end to avert a recession.
Chicago Fed President Charles Evans signaled on Wednesday he was open to lowering interest rates to bolster inflation and to counter risks to economic growth from trade tensions.
"The bond market is saying the Fed is keeping policy rates too high," said John Briggs, head of strategy, Americas, at NatWest Markets in Stamford, Connecticut.
Investors' anxiety about a recession heightened the inversion between three-month bills and 10-year yields, which hit 39 basis points earlier on Wednesday, a level not seen since March 2007. It was last at 31 basis points, flat on the day.
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