Just days before America’s 240th birthday, the U.S. 30-year bond yield dropped as much as 10 basis points to an unprecedented 2.1873 percent, while benchmark 10-year yields touched 1.3784 percent
The decline in yields on Treasuries, the world’s largest bond market at $13.4 trillion, will affect everything from U.S. mortgages and corporate bonds to borrowing costs for cities and governments around the globe. The rally extends a bull market for U.S. debt that began in the early 1980s, after 10-year and 30-year yields peaked above 15 percent. It comes as central banks abroad are experimenting with negative interest rates to spur their economies, pushing yields on almost $12 trillion of government bonds from Germany to Japan to Switzerland below zero and boosting the relative allure of Treasuries
The 10-year Treasury yield fell 12bp to 1.382 per cent, just above July 2012’s record low of 1.381 per cent, according to Reuters. Bond investors have ruled out the prospect of an interest rate rise this year by the Federal Reserve in the wake of Brexit.
"This is buying coming from Europe. It started around 2 in the morning," said Andrew Brenner, head of international fixed income at National Alliance. "This is all about flight to quality, flight to quality in duration." The duration of choice for traders has been the longer end – the 10- and 30-year sector of the U.S. bond market.
"It was absolutely panic buying. Panic buying shows up more as a panic when you're at one of the more illiquid days of the year, when you're at a skeleton staff which is what you are today," said Brenner. "I don't use those words lightly. This thing at 2 a.m. shot up right off the bat." ...
This morning was the lowest yield we've ever seen in the 30-year," said Brenner. Bank of America Merrill Lynch, however, said the yield was the lowest since the 1950s, according to Reuters.
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Equity trading has been poor in most markets this year, although credit trading has recovered as investors reacted to the European Central Bank’s decision to start buying corporate debt. Global trading revenues are still forecast to shrink for all of 2016 compared with last year. Some predict a 10% decline across the board, while analysts at J.P. Morgan JPM -0.66 % think fixed-income trading will be down 15% and equity trading down 25%.
In investment banking—the business of advising on deals and equity or bond issues—the fall may be worse. Merger and acquisition activity has held up, but more deals by value are being pulled than in any year since 2007, according to Dealogic. Initial public offerings have seen the lowest first half volumes since 2009. The one bright area is new bond issuance, spurred on by ECB buying.
Investment banking revenues for the full year could be down 31% versus last year, forecasts J.P. Morgan, adding to fears that 2016 revenues could be worse even than 2008.
U.S. banks finally seem to have the hang of the Federal Reserve’s stress tests. That should prove a comfort to bank investors desperate for yield and unnerved by the U.K.’s vote to leave the European Union.Overall, large banks participating in the test were approved to return capital to shareholders via dividends and buybacks equal to an average 83% of estimated earnings over the next year. That was up from 69% in last year’s stress test, according to Goldman Sachs Group Inc., GS 0.20 % and slightly ahead of Wall Street analysts’ expectations.
Per-share dividends approved posted a median 10% increase versus last year’s stress test, according to Morgan Stanley. MS -0.35 % The higher payouts are especially good news for investors given the 10-year Treasury note is yielding less than 1.5%.
Bank stocks rose Thursday, slightly outpacing the broader stock market. And the approvals signaled that a painful period for bank investors is winding down....
The one catch: For some banks now paying out close to all of, or in some cases more than, expected earnings, there may not be much more runway for big payout increases in coming years. Unless, that is, the banks manage to substantially boost profits, a task made more difficult by a fall in long-term interest rates in the wake of the Brexit vote and fears around how this could affect global growth and any future Fed rate increases.