Treasuries, gold and the Japanese yen were in demand on Tuesday as a quickly accelerating sell-off in US equities fuelled a flight to ‘haven’ assets.
Strong buying in Treasuries pushed yield on the benchmark 10-year note down as much as 8.3 basis points to 3.111 per cent. This is the biggest one-day drop since May, when a political crisis in Italy jolted the markets.
Yield on the two-year note was trading 5.4 bps lower at 2.85 per cent while that on the 30-year bond declined 6.3 bps to 3.31 per cent.
The risk-off mood also sent gold 1 per cent higher to $1,233.55 per troy ounce.
The Japanese yen strengthened 0.7 per cent — the most in two weeks — to ¥112 per dollar.
US stocks joined the global equity rout on Tuesday, with the three main indices all down more than 2 per cent as disappointed outlooks from industrial bellwethers 3M and Caterpillar added to concerns over slowing global economic growth and fuelled investors fears that the earnings cycle has peaked.
Prior to the US stock market open, traders were already in a cautious mood, after Chinese stocks reversed a two-day rally and tumbled almost 3 per cent as analysts questioned whether the moves announced by Beijing in recent days would be enough to offset the effects the trade dispute with the US will have on growth.
Earlier this month, the IMF cut its growth forecasts for a number of major economies. China, which last week reported its weakest year-on-year quarterly growth since the depths of the 2008-09 global financial crisis, has sought to allay concerns over its economic outlook with a series of measures, including cutting bank reserve requirement and pledges to speed up merger approvals and support bond issuance.
However Jason Draho at UBS argued that the US bull run is not over yet.
“The US economic expansion should continue through 2019, with low risk of a recession until at least 2020,” he wrote in a note to clients on Monday. “In other words, it’s not late-cycle just yet. Consequently, we expect the bull market to continue and think equities are attractive relative to US government bonds over the next six months. But at this stage of the cycle, the periodic market correction and volatility experienced this month are to be expected.”
Source: FT.com
