The German 10-year Bund yield fell to a low of 1.34 percent, and the the U.S. 10-year moved in lockstep. There was buying along the entire Treasury curve, with the 5-year at a March low of 1.48 percent, ahead of the 1 p.m. $35 billion auction. The auction was mixed, with a yield of 1.513 percent and bid to cover ratio of 2.73.
The Bund yield moved lower Wednesday after German unemployment unexpectedly increased, feeding fears of a global slowdown. Traders also point to the Chinese yuan, at a near 18-month low on concerns about a weak economy and slowdown, led by the property market.
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The actions of global central banks has been a major driver, as traders focus on the upcoming European Central Bank meeting next week. The ECB is widely expected to cut rates, but it is not expected to embark on a quantitative easing bond-buying program. However, QE may be discussed by the ECB and markets are looking for guidance on the potential for such a program.
"It's the incredible shrinking yield," said Tom Simons, money market economist at Jefferies. "I think it's a continuation of what we've seen for the last several months. You have structural changes in the market. The data doesn't seem to matter...You've had a lower view of what the Fed's trajectory for the Fed funds rate is going to be for the next couple of years. You still have the Fed sitting there with a balance sheet of over $4 trillion, putting downward pressure on rates."
Simons said he doesn't see a bottom in sight for now, and the market is being driven by the Fed's quantitative easing bond buying program. "It sounds like an easy answer but the longer the QE goes on, the longer the cumulative impact of their purchases is going to be on the market." he said.
As European sovereign rates trade lower, U.S. Treasurys have also become more attractive, on a relative basis.
The move in rates also comes in a vacuum of news Wednesday, but there will be a second look at first quarter GDP Thursday, a number that is likely to be negative.