(Bloomberg News) U.S. 30-year bonds headed for their best week in almost three years after the Federal Reserve and Pacific Investment Management Co., manager of the world's biggest bond fund, issued warnings on the economy.
The extra yield long bonds offer over two-year notes narrowed to 2.56 percentage points yesterday, the least since March 2009. Futures contracts fell today as finance chiefs from the Group of 20 nations said they will take "all necessary actions" to support financial markets. Treasuries trading was closed in Japan for a holiday.
"We're darn close to a recession," said Marc Fovinci, who helps oversee $2.9 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. "The bias is toward lower rates. We bought last week."
Thirty-year yields dropped 52 basis points this week to 2.80 percent as of yesterday in New York, according to Bloomberg Bond Trader prices. It was the steepest decline since November 2008. The 3.75 percent security maturing in August 2041 rose 10 30/32, or $109.38 per $1,000 face amount, to 119 6/32.
A plunge in stocks spurred demand for the relative safety of U.S. government debt yesterday, pushing benchmark 10-year yields to a record low of 1.6961 percent. The Dow Jones Industrial Average fell 3.5 percent, bringing its two-day retreat to 5.9 percent, the biggest back-to-back slide since December 2008, when the U.S. economy was in a recession.
"It was just sheer and unadulterated panic," Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest interdealer broker, wrote in a report today.
The gap between 10- and two-year yields narrowed to 1.50 percentage points yesterday, the least since January 2009.
The world is on the eve of a financial crisis, Mohamed El- Erian, co-chief investment officer at Pimco, said yesterday.
Bill Gross, who runs the $245 billion Pimco Total Return Fund in Newport Beach, California, said in a Twitter post that a recession is looming in developed economies. "Euroland already there," he wrote. "U.S. to follow shortly?"
Gross increased Treasury holdings to 16 percent of assets in August from 10 percent in July, Pimco's website showed.
The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, widened to 36 basis points, the most in 14 months.
The G-20 will "commit to take all necessary actions to preserve the stability of banking systems and financial markets as required," the group's policy makers said in a statement issued after talks in Washington.
Ten-year futures contracts for December delivery declined 9/32 to 131 14/32 in electronic trading at the Chicago Board of Trade today as of 12:54 p.m. in Singapore.
U.S. 30-year bonds have returned 16 percent this month, according to Bank of America Merrill Lynch data. An index of debt securities around the world gained 1.16 percent.
The MSCI All Country World Index of stocks handed investors a 10 percent loss over the same period, according to data compiled by Bloomberg.