Treasuries advance as ECB bond-buying plan well-anticipated

[NEW YORK] Treasuries gained on speculation investors had anticipated plans by the European Central Bank for expanded bond-buying to bolster economic growth and avoid deflation.

Benchmark 10-year yields dropped after ECB President Mario Draghi said the central bank will buy 60 billion euros (US$69 billion) of private and public securities a month through September 2016. Treasuries have rallied this year as falling yields around the world made US securities more attractive on a relative basis even as investors prepare for the Federal Reserve to increase borrowing costs later this year.

"We'd priced in so much of this because of the Treasury market response to the Fed in the past," said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

"Everyone was thinking we're going to see a significant selloff. It was as expected, so now we're rallying a little bit."

Ten-year yields dropped two basis points, or 0.02 percentage point, to 1.85 per cent at 9:19 am New York time. The 2.25 per cent note due in November 2024 added 9/32, or US$2.81 per US$1,000 face amount, to 103 20/32. The yield rose as much as seven basis points earlier.

US government securities fell yesterday as prospects of the stimulus measures curbed demand for the relative safety of America's debt. The Bloomberg US Treasury Bond Index has returned 1.9 per cent this month.

The ECB left the main refinancing rate at 0.05 per cent, a decision predicted by all 48 economists in a Bloomberg News survey. The deposit rate remained at minus 0.2 per cent and the marginal lending rate at 0.3 per cent.

Central banks intensified their battle against slowing inflation this week as a 50 per cent plunge in the cost of oil over the past year threatens to curb consumer-price gains across the global economy.

The Bank of Canada cut its main interest rate, and the Bank of Japan expanded a lending program. Two Bank of England policy makers dropped calls for an interest-rate increase.

The US is scheduled to sell US$15 billion of 10-year Treasury Inflation Protected Securities. The debt was last auctioned on Nov 20 to yield 0.497 per cent.

BLOOMBERG