The “plunge in risk asset prices is helping the bid” for Treasuries, said Tomohisa Fujiki, the head of interest-rate strategy for Japan at BNP Paribas SA in Tokyo. The company is one of the 22 primary dealers that underwrite the U.S. debt.
Japan’s 10-year bond yield extended its decline below zero, setting a record of minus 0.09 percent.
After outperforming equities and corporate debt in the first two months of this year, Treasuries are showing signs of faltering as stronger-than-forecast U.S. employment data and an uptick in inflation expectations lead traders to boost wagers the Federal Reserve will raise interest rates.
The Bloomberg U.S. Treasury Bond Index has fallen 0.8 percent in March, after gaining 2.1 percent in January and 0.9 percent in February. The Bloomberg U.S. Corporate Bond Index is little changed this month and has gained 1.1 percent in 2016.
Rate Divergence
The Fed will leave rates unchanged when it meets March 15-16, according to 52 of the 61 economists surveyed by Bloomberg. The European Central Bank will cut its deposit rate, which is already below zero, when it meets March 10, a separate survey shows.
Derivatives traders see about a 72 percent chance the Fed will raise rates by year-end, up from a 36 percent probability on Feb. 25, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.
“Investors have come to the realization that the economic data at some point will allow the Fed to continue with the normalization," said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, another primary dealer. "The tone from the economic data last week was pretty strong."