Stock Market Sell Off Boosts Treasury Prices
June 10th marked the best day in the S&P’s 500 in over a month, largely due to a major sell off in German Bunds. The same strategized sell off resulted in the U.S. Treasury yields to spike to their highest recorded yields in more than seven months; a relief after being carefully tracked for the better part of a year. U.S. shares are now on the rebound.
Other U.S. Financial Increases That Could Be Attributed to the Sell Off
The U.S. Treasury wasn’t the only beneficiary of the recent rises. Oil prices also improved, and with it, raising hopes that the U.S. equities will be strong enough to handle the Greek government debt crisis.
Other industrial averages that experienced a comeback: the Dow Jones increased 1.33 percent, the Nasdaq Composite went up 1.25 percent, and the S&P 500 rose 1.2 percent. S&P experienced gains in their financial stocks and energy sector index, as well, at 1.4 percent and 1.2 percent, respectively.
The German Bunds sell off boosting the Treasury prices came at just the right moment, given the Greek and European debt crises, and the sharp drop in the value of the Japanese Yen. While finances take a global dip, the sell off secured a brief financial respite for the U.S. after a long solid auction of 10-year notes.
Unstable Economic Climes and Currency Failings May Be Ahead
The German 10-year yields also finally rose above 1 percent for the first time since September, putting to rest concerns that the euro zone might go into deflation. The 10-year yields rose for their fourth consecutive day as of June 11th. This shift caused investors to drop holdings on Japanese government bonds and U.S. Treasuries.
According to Mike Cullinane, head of Treasuries trading at D.A. Davidson in St. Petersburg, Florida, “We are completely tracking bund yields.”
The sharp increase in yields might scare off investors, as they did two years ago. According to Boris Rjavinski, a strategist at UBS in Stamford, Connecticut, “We are approaching yield levels where we may begin to see outflows from some bond funds. People might not have tolerance for more losses.”
In an effort to combat the potential loss of investor interests, the U.S. Treasury sold $13 billion worth of 30-year bonds on June 11th. Analysts are hoping that the boost in U.S. Treasury yields will incentivize investors to own new issues of U.S. Treasuries and corporate bonds. However, it’s speculated that the investors who’re concerned about a further rise in Treasury yields might hold off on purchasing them until yields stabilize.
The Greek Debt’s Impact on Current Economic Trends and Prices
Whether or not Greece and its creditors are able to quickly strike a deal will continue to cause market swings until a deal is finalized. The fear amongst traders is that Athens will default on a 1.6 billion euro repayment that is due at the end of June to the International Monetary Fund and exit the euro zone. This will be their fourth IMF deadline that has come up this month. If they do default, it could cause more sharp swings in the market, and global financial upset.
Despite the Yen’s troubles, the U.S. dollar is still currently rallying; again in part due to the stock market sell off. The U.S. consumer-price index was also given a boost, even in the face of decreased investor confidence in bond prices. That increase could signal an upcoming decrease in Treasury prices, as the two are often linked. Whether or not this increase holds throughout the month remains to be seen, given the current economic volatility.
Global economic decisions made in the course of the next few weeks could affect the current upward trend of U.S. Treasury prices, despite the effects of the recent German Bunds sell off.
12 Jun 2015