Treasury yield plumbs 10-month low heading into new year holiday

[NEW YORK] Bond traders still clinging to their desks right into a volatile year-end are driving Treasury yields to multi-month lows across the curve.

The 10-year yield dipped below 2.7 per cent Monday, into territory last seen in the teeth of February's volatility spike. The benchmark rate has been on a sliding trend for most of the fourth quarter, spurred by an equity-market sell-off that at one point left the S&P 500 index almost 20 per cent below its record.

A surprisingly weak Federal Reserve Bank of Dallas manufacturing survey and softer oil prices were among the few catalysts to be found ahead of Monday's early close, with bond trading set to end at 2pm New York time for the New Year holiday.

FTN Financial strategist Jim Vogel said these factors may have highlighted value in the longer end of the curve following an aggressive repricing in short-term rates since this month's Fed meeting.

"It took quite a long time for the rest of the Treasury curve to respond to that, so now there are parts of the real yield curve that are too steep," he said.

However, he doesn't expect to see deeper lows in benchmark yields as activity picks up in January.

"In Formula One racing if a driver's about to crash, they take their hands off the wheel so their arms don't get broken - after the Fed, traders took their hands off the wheel," Mr Vogel said. "But in January, they're going to have to get serious about what's my plan in this new market."

BLOOMBERG