Bond Report: 10-year Treasury yields decline for fifth straight quarter

NEW YORK (MarketWatch) — U.S. Treasurys declined for five consecutive quarters, marking the longest period of quarterly declines in benchmark yields dating back to 2001.

The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, -1.16%   declined 24.3 basis points to 1.930% this quarter, according to Tradeweb. That is the largest quarterly drop since the third quarter of 2012.

On Tuesday, the 10-year yield declined 2.9 basis points, as the market digested mixed reports while bracing for the nonfarm payroll data set for Good Friday — expected to be a thinly traded day. Read: When do markets close for Good Friday?

The two-year note TMUBMUSD02Y, -4.03%   yield declined 11.3 basis points to 0.555% this quarter and lost 7.1 basis points during the month of March. On Tuesday, it shed 3.2 basis points.

The 30-year bond TMUBMUSD30Y, -0.42%   yield dropped 20.4 basis points to 2.535% this quarter and lost 6.5 basis points in March. On Tuesday it dropped one basis point.

During the month of March the 10-year yield lost 7.2 basis points. The two main forces behind this move were the European Central Bank’s aggressive stimulus program that put downward pressure on yields and the Federal Reserve’s dovish policy statement that sparked a buying rally that drove yields higher. Read: 2015’s volatile first quarter explained in 7 charts

Bond prices move inversely to yields.

Month-end and quarter-end results favored reducing risk and unraveling positions in the Treasury market on Tuesday.

One of the challenges in the current interest rate market is that there is limited room to make aggressive bets of higher or lower yields, notes Guy LeBas, chief fixed income strategist at Janney, in a research note.

It has been a volatile start to 2015 for fixed income in general, LeBas added, with the best month in a quarter century, January, followed by the worst, February, and then a decent finish, March, to generate solid net returns.

“If anything, the bullish or bearish rates debate now comes down to the evolution of economic expectations. If market expectations of growth start to deteriorate, that would be the only evident trigger for further rallies. But with Friday’s nonfarm payrolls release likely positive, further rallies don’t seem to be in the cards,” LeBas said.

Indeed, a series of mixed reports that came out on Tuesday made the market fluctuate but the net effect didn’t result in a much of a move for yields. This follows a trend that started last week, during which the market has changed directions more than five times through choppy trading.

Here’s what Treasury investors were watching on Tuesday:

  • The S&P/Case-Shiller report came in higher-than-expected, showing that U.S. house prices were up 4.6% from Jan. 2014
  • Also Tuesday, Chicago PMI showed further contraction.
  • But March consumer confidence surged
  • U.S. stocks also edged lower as investors sold positions ahead of corporate quarterly results.
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