By Min Zeng
Government bond yields across the Atlantic tumbled broadly on
Friday as investors believe the European Central Bank's historic
bond-buying program will bolster the value of financial assets.
In the U.S., the yield on the benchmark 10-year note fell toward
a 20-month low. The 10-year yields in a number of countries in the
eurozone, including Germany, France, Spain and Italy, fell to
record lows, extending the record-setting streak over the past
months. Bond prices rise when their yields fall.
Investors have been piling into both stocks and government bonds
following ECB President Mario Draghi's announcement on Thursday
that the central bank will buy a total of EUR60 billion ($67
billion) a month in assets, including government bonds. The ECB,
which is confronting a stagnant economy and deflation risks, said
the buying will start in March and run through September 2016.
Bond buyers believe the buying binge from the ECB will mop up
lots of European government bonds out of the secondary market. The
monetary stimulus program comes a time when demand for bonds,
especially high-grade government bonds, remains strong due to the
uncertain global growth outlook, which will keep bond yields at
historically low levels.
"In today's $100 trillion global supermarket of bonds, the
shelves will be further emptied by the ECB's bond-buying program,
supporting bond prices," said Tony Crescenzi, senior market
strategist at Pacific Investment Management Co. in Newport Beach,
Calif., which had $1.68 trillion in assets under management at the
end of 2014.
The ECB joins the ranks of the Federal Reserve and other major
central banks tapping the unconventional monetary-policy tool known
as quantitative easing following the 2008 financial crisis. By
buying bonds, central banks aim to keep bond yields low to
encourage consumer spending and business investments. The generous
liquidity has sent the value of stocks and bonds soaring over the
past few years.
In recent trading, the yield on the benchmark 10-year Treasury
note was 1.840%, compared with 1.898% on Thursday, according to
Tradeweb.
The yield closed at 1.777% on Jan. 15, the lowest level since
May 2013. The yield was 2.173% at the end of 2014.
Bond yields in the eurozone were even slimmer than those in the
U.S.
The yield on the 10-year German government bond fell to 0.335%.
The yield on France's 10-year bond fell to 0.543%. The yield on
Spain's 10-year bond declined to 1.36% and the yield on Italy's
10-year bond dropped to 1.509%.
Jim Caron, global fixed-income portfolio manager at Morgan
Stanley Investment Management, with $398 billion in assets under
management, said he expects the ECB to gobble up all the net
issuance of eurozone government bonds over the next 12 months.
"This should prove to be supportive for euro bonds ultimately.
As for Treasury bonds, they will follow price action in Europe,"
said Mr. Caron.
Lower bond yields in Europe and Japan have turned U.S. Treasury
bonds into an attractive bargain, dragging down U.S. bond yields
even as the U.S. economy has strengthened and the Fed is prepared
to raise interest rates in the middle of this year for the first
time since 2006.
A stronger dollar has enabled foreign investors to pick up extra
returns on U.S. bonds and stocks. The dollar rallied Friday to the
strongest level against the euro in more than a decade.
The amount of Treasury bonds held by foreign investors,
including central banks and private investors, increased by $53.5
billion in November to a record of $6.112 trillion, according to
the latest monthly capital-flows report released by the U.S.
Treasury last week. The monthly report is released with a two-month
lag.
Write to Min Zeng at min.zeng@wsj.com