We hear a lot about oil, and today copper is in focus, but the biggest story in the market right now is the Long Bond.
The US 30-Year Treasury bond — known as a the “Long Bond” (technically, all other Treasury bonds are called “notes” for durations between 2 and 10 years and “bills” for the shortest durations) — is currently at a record low yield of around 2.42%.
To start 2015, long-dated government bonds from a number of major economies including the US, Germany, and Japan, have seen yields tumble. The drop in long-dated bond yields has been attributed to the decline in inflation expectations, particularly out of Europe, as well as concerns over global growth and a slowing pace of debt issuance from the Treasury department.
Speaking with Bloomberg News on Wednesday, long-time bond bull Lacy Hunt said the 30-year yield could fall as low as 2%.
“We’re in the money-management business, we’re not in the mind-changing business,” Hunt told Bloomberg’s Daniel Kruger. “We’ve thought for a very, very long time that the bond yield could go to 2 per cent, or slightly lower, and that remains our view.”
In an email on Wednesday, Chris Rupkey at Bank of Tokyo-Mitsubishi wrote:
“The outlook is full on gloom here and bordering on doom. We are firmly on the bust side of the boom-bust commodity cycle. No matter how much analysts point the finger at the supply side, the bond market seems convinced that crude oil is falling for weak economic demand reasons. For yields it is a proverbial race to the bottom.”
On Wednesday afternoon, the US Treasury auctioned $US30 billion of 30-year bonds at a record low yield of 2.43%, about 41 basis points — or 0.41% — lower than the last 30-year auction.
Demand at Wednesday’s auction was down slightly, as data from Bloomberg showed that in Wednesday’s auction, Treasury receieved total bids of $US30.2 billion for $US13 billion in bonds sold against demand of $US35.9 billion in bids for $US13 billion in bonds sold at the previous auction.
Now, the record low in 30-year yields comes on a smaller timeframe than its 10-year counterpart, as Treasury only began regularly issuing the Long Bond in 1977.
But again, while oil has taken the market by surprise, there is no consensus call that has been more wrong than for bond yields to rise.
Here’s a 3-month chart of the 30-year yield, which just will not stop going lower.
And the last year of 30-year yields. An almost straight line down.