US bond yields fall after surprise Swiss rate cut

US 10-YR
US 30-YR

U.S. Treasurys yields fell on Thursday with the 30-year yield hovering near record lows after a surprise interest rate cut from the Swiss central bank stoked demand for higher-yielding U.S. government securities.

The Swiss National Bank lowered its policy rates by 50 basis points, pushing them further into negative territory to -0.75 percent in an effort to help its exporters by easing upward pressure on its currency.

"It's a shock and investors feel, 'Let's just own Treasurys and be safe,"' said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York.

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Trading was volatile after a batch of U.S. economic data failed to dispel worries about weakening domestic growth and a growing view the Federal Reserve might not raise interest rates in 2015, analysts said.

The Philadelphia Federal Reserve said on Thursday its index of regional business conditions declined to 6.3 in January, an 11-month low.

Moreover, the Labor Department said producer prices fell 0.3 percent in December for its biggest monthly drop in over three year, but it was less than an expected 0.4 percent.

Bond yields rose briefly as U.S. oil prices rose above $51 a barrel. They were last down 2.6 percent at $47.24.

Oil prices, which are pegged against the greenback globally, climbed earlier partly on a steep drop in the dollar after the Swiss National Bank abandoned its three-year old cap on the franc.

On the open market, the 30-year Treasurys yield was 2.437 percent, down 1.6 basis points from Wednesday when it set a record low of 2.395 percent.

Benchmark 10-year yield was 1.792 percent, reflecting a price gain of 18/32. It hit a near 20-month low of 1.784 percent on Wednesday.

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U.S. yields are higher than those in Japan and much of Europe, where short-dated yields have been stuck in negative territory .

Investors are waiting to see whether the European Central Bank might embark on an aggressive bond purchase program, similar to the one the Fed ended last year, in a bid avert deflation spreading across the euro zone.

"People are scared about deflation and the global economy rolling over. The catalyst is whether the ECB will engage in quantitative easing (QE)," said Brian Smith, a bond trader at TCW in Los Angeles.

The ECB will hold a policy meeting on Jan. 22, and economists polled by Reuters placed a 70 percent chance that policy-makers will decide on QE.