Greek Exit Fears Push 30-Year Yield to Two-Year Low

Reuters

Long-term Treasury yields fell Monday, with the 10-year yield hitting its lowest level since mid-December and the 30-year yield hitting its lowest level in two years, as nervous European investors shifted out of stocks and into Treasurys on concerns that a so-called 'Grexit', or Greek exit, from the eurozone appeared likely.

The 10-year Treasury yield (10_YEAR) fell 3.5 basis points to 2.088%, its lowest level since Dec. 17, according to Tradeweb.

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The 30-year Treasury yield (30_YEAR) moved four basis points lower to 2.655%, while the five-year Treasury yield (5_YEAR) fell 1.4 basis points to 1.604%. The spread between the five-year and 30-year Treasury is hovering around its narrowest level since January 2009.

Jeff Gundlach told Barrons that 10-year Treasury bond yields could move below their modern-era low of 1.38%, going against the conventional wisdom that an interest-rate increase by the Fed will support 10-year yields.

The two-year Treasury yield (2_YEAR) was up 1.6 basis points to 0.685%, as investors continued selling the short-term bond on the expectation the U.S. Federal Reserve will begin raising interest rates some time during the first six months of the year.

European markets were roiled by a report in a German newspaper which implied that German Chancellor Angela Merkel's administration now believes a Greek exit from the eurozone is possible, said Tom di Galoma, head of rates and credit trading at ED & F Man Capital Markets.

"There's a risk off trade that's taking place because there's some thought that Greece might end up leaving the EU," di Galoma said.

European stock indexes traded lower Monday, with the Stoxx Europe 55 down, or 1.84%, to 2,936.67

A provisional gauge of German inflation for December released Monday morning came in lower than expected, increasing the likelihood that the European Central Bank will begin a program of government-bond purchases in the near future.

Draghi told a German newspaper Friday that the risk of outright deflation in the eurozone has increased, a sign that the central bank could launch quantitative easing in January.

Among European sovereigns, the Greek 10-year yield gained 30 basis points, rising to 9.556%, as investors worried that a Greek default appeared more likely.