U.S. yields lower on soft global data, after strong auction

(Recasts; updates yields)

By Kate Duguid

NEW YORK, April 24 (Reuters) - U.S. Treasury yields were lower across maturities on Wednesday as investors piled into the safe-haven government bonds following a dovish report from Canada's central bank, weak data from Germany and Australia, and solid demand at auction for $41 billion of new five-year notes.

Yields across maturities declined between 4 and 5 basis points. The largest change was in the seven-year yield , last down 4.9 basis points, going into the auction of $32 billion of fresh supply on Thursday. Going into Wednesday's five-year auction, yields were lower and little changed following strong demand from bidders.

Indirect bidders, a proxy for interest from foreign investors, took the largest percentage of the five-year offering since August 2018.

Also in play was the Bank of Canada's announcement that it lowered its growth forecast for 2019 and the removal of wording from its policy statement about the need for future interest rate hikes. The bank's dovish announcement added to the rally in Treasury prices that began Wednesday morning after Australia and Germany reported data.

"There was bad data out of Germany and Australia and the rates market reacted to that. So we're seeing (Treasury prices) rally," said Wen Lu, interest rates strategist at TD Securities in New York. "We also hit the top of the (10-year yield) range around 2.60, so that was a natural catalyst for us."

Australian inflation slowed sharply last quarter to the lowest level in three years on weak gas prices and a stubborn lack of wage pressure, which adds to the Reserve Bank of Australia's case for an interest rate cut, perhaps as soon as May.

In Germany, business morale deteriorated in April, against expectations for a small improvement, as trade tensions hurt the industrial engine of Europe's largest economy, leaving domestic demand to support slowing growth.

However, in an expression of bullish sentiment, the yield curve steepened to its widest level since November 2018 earlier on Wednesday, after strong corporate U.S. earnings drove up the S&P 500 index to just shy of its intra-day record high hit on Sept. 21.

After a day of mixed corporate earnings, U.S. stock indexes were stalled, and the spread between two- and 10-year yields retraced some of its earlier move to the 21.5 basis-point high. It was last that high in November prior to a period of financial market volatility spurred by weaker U.S. economic data and fears the Federal Reserve would continue its rate-hiking cycle in spite of a slowdown in growth.

The Fed has since put its monetary tightening on hold and is not expected to raise interest rates again in 2019.

(Reporting by Kate Duguid Editing by Leslie Adler)

First Published: 2019-04-24 16:47:44
Updated 2019-04-24 21:55:45


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