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April 24, 2019, 3:49 p.m. EDT

10-year Treasury yield records biggest daily drop in a month after soft German data

Treasury Department sold $41 billion of 5-year notes on Wednesday

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By Sunny Oh

Treasury prices rose Wednesday, pushing yields lower, after a reading of German business confidence heightened concerns over the health of the biggest economy in the eurozone, sparking a rally in European government paper. A sharp yield slide in Australian bonds also was in focus after a report on consumer prices.

What’s the market doing?

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -3.54%  slipped 4.9 basis points to 2.522%, is biggest daily decline since March 22, while the 2-year note yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -4.15%  retreated 4.3 basis points to a three-week low of 2.320%, marking its largest single-day drop since March 27.

The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -3.16%  was down 4 basis points to 2.941%, marking its biggest daily decline since March 27. Bond prices move in the opposite direction of yields.

The German 10-year government bond yield /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y -4.95% fell 5.4 basis points to negative 0.01%. German debt is seen as a proxy for the rest of the core eurozone bond market, and can influence the direction of Treasurys trading as it shares a similar status as a haven investment.

The 10-year Australian government bond /zigman2/quotes/211347066/realtime BX:TMBMKAU-10Y -0.09% fell 11 basis points to 1.78%, Tradeweb data show.

What’s driving markets?

European government bonds and Treasurys rallied after the German Ifo Business Climate Index for April fell 0.5 points to 99.2, below analysts’ consensus estimate of 99.7. A leading indicator of the German economy, the decline in the Ifo index drew questions around the German economy’s momentum, and the continued weakness in its manufacturing industries.

At the same time, analysts say recent data has shown a brightening economic picture for Germany, such as April’s jump in the forward-looking German ZEW economic sentiment index.

Meanwhile, Australian consumer prices were flat for the first-quarter, energizing bets on the Reserve Bank of Australia to cut rates when it convenes its May 7 policy meeting, with the data contributing to a precipitous yield drop in Australian government debt.

See : German business sentiment unexpectedly worsens

What did market participants say?

“The Treasurys rally can be attributed to the general slowdown globally, be that Australia or Germany,” Nick Maroutsos, co-head of global bonds at Janus Henderson Investors, told MarketWatch.

“At first glance, today’s drop in the Ifo index seems to dent any optimism for German growth. At second glance, however, the picture is much more complex. Over the last weeks and months, there has been a zigzagging of the main confidence indicators. In our view, a sign of stabilization of the economy; nothing less and nothing more,” wrote Carsten Brzeski, chief economist for ING Germany.

What else is on investors’ radar?

At auction, buyers snapped up $41 billion of 5-year Treasury notes, the second of three debt sales this week. So far, the influx of supply this week has failed to dent prices for government paper.

Analysts are also paying attention to reports that Japanese insurers are raising their purchases of Treasurys and U.S. corporate bonds. Japan Post Insurance Co. , one of the biggest insurers in the world, said it planned to increase its holdings of U.S. corporate debt for 2019 as domestic Japanese yields remained near ultralow levels.

Expectations for more dovish policy by major central banks gained ground on Wednesday. The Bank of Canada kept rates unchanged at 1.75% in its April policy update, but took away its tightening bias.

add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
-0.10 -3.54%
Volume: 0.00
May 24, 2022 3:00p
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
-0.11 -4.15%
Volume: 0.00
May 24, 2022 2:59p
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
-0.10 -3.16%
Volume: 0.00
May 24, 2022 3:00p
add Add to watchlist BX:TMBMKDE-10Y
BX : Tullett Prebon
-0.05 -4.95%
Volume: 0.00
May 24, 2022 6:01p
add Add to watchlist BX:TMBMKAU-10Y
BX : Tullett Prebon
-0.0030 -0.09%
Volume: 0.00
May 24, 2022 4:30p

Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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