Treasuries rally as Korea, Hurricane fears rise

US 10-year treasuries hit lowest level since US election

Treasuries rally as Korea, Hurricane fears rise
Steve Randall
Risk-averse investors returned from the Labour Day weekend to a cocktail of tension including North Korea and Hurricane Irma.

The cautious tone boosted safer havens such as gold, while Treasuries saw their biggest rally since March with yields for 10-year US bonds tumbling to a 10-month low of 2.06% (down 10 basis points).

President Trump’s pledge for a forceful response to the latest North Korean nuclear test was coupled with dovish comments from the Fed on interest rates. Minneapolis Fed President Neel Kashkari warned that the hikes in recent years could be damaging the US economy.

While politics remains volatile, so does the weather, with Hurricane Irma threatening devastation in the Caribbean and the potential for it to hit Florida by the weekend.

The growth for Treasuries came as equities slumped with the Dow Jones shedding more than 200 points (1.07%) and sharp declines for the S&P500 and Nasdaq. The main TSX index dropped 101 points (0.67%).

CIBC head of fixed income at CIBC Atlantic Trust Private Wealth Management Gary Pzegeo said that the move to Treasuries was a “flight to safety” but not a classic one.

“We are not seeing weakness in risk assets in fixed income,” he told the Financial Times.

The other unusual note for the rise in Treasuries was that there was also a jump for corporate debt issuance by companies including Apple, IBM and Toyota with more than $20 billion expected to be raised.

Treasuries often suffer from corporate debt issuance as money managers divert funds.