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TREASURIES-U.S. Treasury yields fall after ECB announces bond purchases
January 22, 2015 / 7:52 PM / in 3 years

TREASURIES-U.S. Treasury yields fall after ECB announces bond purchases

(Adds TIPS auction, updates prices)
    * U.S. yields fall; ECB purchases larger than expected
    * German bond yields fall to record lows
    * ECB stimulus seen supporting U.S. interest rate hike
    * Strong investor demand for 10-yr TIPS auction

    By Karen Brettell
    NEW YORK, Jan 22 (Reuters) - U.S. Treasuries pared yield
declines on Thursday but remained slightly lower after the
European Central Bank announced more bond purchases than
expected in a move that boosts global liquidity and is expected
to support U.S. and European bonds.
    The ECB said it would buy government bonds from this March
until the end of September 2016 despite opposition from
Germany's Bundesbank and concerns in Berlin that the move could
allow spendthrift countries to slacken economic reforms.
 
    "It's likely to impact yields everywhere," said Aaron Kohli,
an interest rate strategist at BNP Paribas in New York. "When
you put this much stimulus into the markets it's going to go
other places that you hadn't intended, and one of those places
is going to be U.S. debt as well."
    The bond purchases will further reduce the supply of
high-quality debt, which has supported long-dated Treasuries as
investors reach for higher yields. That is likely to continue to
support bonds even as investors also anticipate improving growth
and inflation that should eventually push yields higher.
    "It's bullish for Treasuries," said Kim Rupert, managing
director of Action Economics in San Francisco. "We've seen
record low yields in the periphery in Europe, and that will
provide an underpinning for Treasuries for widening spreads."
    Benchmark 10-year notes were last yielding 1.90
percent, after falling as low as 1.82 percent, down from 1.94
percent before the announcement. Thirty-year bonds 
yielded 2.47 percent after going as low as 2.41 percent, down
from 2.54 percent before the ECB announcement.
    German 10-year government bond yields hit
record lows of 0.377 percent after the ECB press conference.
    Investors bought a majority of the $15 billion worth of U.S.
10-year Treasury Inflation-Protected Securities offered on
Thursday, suggesting demand for higher-yield U.S. bonds as
European yields hit record lows. 
    The risk to own U.S. TIPS was reduced after the ECB
announced its bond purchase program, aimed at averting deflation
spreading across the euro zone.
    The ECB's stimulus may also provide a backstop that will
help the Federal Reserve raise interest rates, which many expect
to begin in the first half of this year.
    "It's a really big positive for the Fed, it gets another
major central bank into the system of trying to prop up the
markets and support risk sentiment," BNP's Kohli said.
    The next major focus for the market is the Fed's Jan. 28
policy announcement at the completion of its two-day meeting.

 (Additional reporting by Michael Connor and Richard Leong;
Editing by Lisa Von Ahn, Paul Simao and Peter Galloway)

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