Treasury yields fell Thursday, dragged lower by a slide in European yields after eurozone growth expectations for this year were slashed, adding to mounting concerns a global economic slowdown was under way.
The 10-year Treasury note yield TMUBMUSD10Y, -1.73% tumbled 5 basis points to 2.652%, while the two-year note yield TMUBMUSD02Y, -1.77% slipped 4.3 basis points to 2.480%. The 30-year bond yield TMUBMUSD30Y, -1.10% fell 4.4 basis points to 2.993%. Bond prices move inversely with yields.
The German 10-year bond yield TMBMKDE-10Y, -28.83% retreated 5 basis points to 0.115%, while the Italian 10-year yield rose 12.4 basis points to 2.961%. Treasurys and their German peers often follow each other as they’re both considered haven investments.
German and other European bonds mostly rallied after the European Commission cut its growth forecast for the 19-nation eurozone to 1.3% for 2019 from its earlier forecast of 1.9%, citing the sharp deterioration in global trade.
Meanwhile, remarks by Trump administration officials cooled any expectations for a quick resolution of the long-running U.S.-China trade spat. National Economic Council Director Larry Kudlow said there was a “pretty sizable distance” to bridge before a U.S.-China trade agreement was reached. Also, reports indicated President Donald Trump and Chinese President Xi Jinping were unlikely to meet before March 1, though the U.S appeared unlikely to stick to its deadline for further raising tariffs on Chinese goods after that date.
Global growth concerns have exerted a stronger influence over yields for U.S. government paper in recent weeks, amid fears that the U.S. economy’s strength will eventually give way, leading its growth to shift lower and closer to its anemic developed-market peers.
See: This chart shows slower global growth is dragging down the 10-year Treasury yield
Analysts say the tepid data could lead the European Central Bank to push out its expected timing of a rate increase, capping the rise in European yields. The ECB has pledged it will keep interest rates at present levels at least through the summer of 2019, and for “longer, if necessary.”
“These macro downgrades should see the ECB signaling that rates will be on hold for even longer,” wrote Nick Kounis, head of financial markets research at ABN Amro.
Italian government paper sold off as Italy’s growth forecast was cut to 0.2%, from previous expectations of 1.2%. Weaker growth would undermine Italy’s pledge to keep its fiscal deficit to 2.04% of the country’s annual economic output in 2019 — the government’s budget forecast assumed GDP would grow at 1% — potentially setting up another clash between Rome and Brussels.
The Bank of England stood pat, as expected, at its February meeting. The central bank also snipped its growth expectations for the United Kingdom to 1.2% this year from 1.7%. Investors say the lack of progress on Britain’s plans to leave the European Union has kept the BOE on hold.
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