Treasuries Rally As EM Markets Continue To Drop

Treasuries gained with European bonds as falling commodity prices curbed the outlook for inflation. Futures signaled U.S. stocks will fall, while China’s shift to a more market-oriented exchange rate continued to push assets in developing economies lower.

Oil led commodities lower as Iran said OPEC production may hit a record after sanctions on the country are lifted. That’s boosting the value of fixed-income assets and fueling speculation the Federal Reserve will keep rates lower for longer. China’s shock devaluation of the yuan last week spurred concern over the slowdown in the world’s second-largest economy, prompting investors to reassess the outlook for emerging markets.

“China remains close to the center of the market’s radar which is underpinning the commodity weakness,” said Richard McGuire, head of European rates strategy at Rabobank International in London. That’s “feeding into a bullish tone in fixed income across the board,” he said.

Treasuries rose for the first time in four days, sending yields on 10-year notes down two basis points to 2.18 percent at 8:20 a.m. in New York. The Bloomberg Commodity Index slid to a 13-year low as oil extended its retreat in a bear market and Malaysia’s currency tumbled to the weakest since 1998. Futures on the Standard & Poor’s 500 Index slipped 0.2 percent.

Greece led gains in European stocks after German Chancellor Angela Merkel said she’s confident the International Monetary Fund will join Greece’s bailout.

The yield on German 10-year bunds slid one basis point to 0.65 percent, while that on similar-maturity Italian bonds fell four basis points to 1.77 percent.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell