US Treasuries surged, sending the yield on the most widely traded two-year note to a record low, after Goldman, Sachs & Co said the Federal Reserve will cut interest rates to bolster a faltering economic recovery.
The 2 1/4 percent note maturing in July 2004, one of the securities most sensitive to Fed rate changes, gained more than 1/8, or US$1.25 per US$1,000 face amount, to 100 15/32 at 5:15pm Friday as Goldman said the Fed will cut the overnight interbank lending rate as much as 1 percentage point by year-end to 0.75 percent.
The note's yield fell 12 basis points to 2 percent, its lowest since the government began regular sales of the security in the 1970s. It has dropped 1.37 percentage points in the past 11 weeks.
"Fed rate cuts, weakness in manufacturing -- people are running those scenarios and it's making them depressed, which is making them buy Treasuries," said John Poole, who helps manage US$10 billion at Mellon Private Asset Management in Boston.
The 4 7/8 percent note due in 2012 rose 13/16 to 104 9/16, trimming its yield 10 basis points to an eight-month low of 4.29 percent. A basis point equals 0.01 percentage point.
The 10-year note lagged gains in the two-year note as some analysts said a rate cut after 11 reductions last year may spark faster inflation, eroding the value of securities with longer maturities. The difference in yields between two and 10-year notes widened 2 basis points to 2.29 percentage points. The gap is the widest since January 1993, months after the Fed finished a series of rate cuts.
Ten-year notes also lagged gains in two-year notes as investors anticipated the government's sale next week of a record US$18 billion in 10-year notes and $22 billion in five-year notes.
The Treasury is swelling the supply of securities to finance the first budget deficit since 1997. The five-year note sale equals the size of a record sale last quarter.
The yield gap between two and 10-year notes is within 40 basis points of its peak in 1992 of 2.68 percentage points. "You can certainly surpass that high" within a few months, said Richard Gilhooly, a government bond strategist at BNP Paribas.
A government report today added to evidence the recovery is slowing. The economy generated 6,000 new jobs last month, a fraction of the 60,000 forecast by economists, leaving the unemployment rate at 5.9 percent.
Stocks fell, boosting the appeal of Treasuries' fixed-rate payments. The S&P 500 dropped 2.3 percent, extending its losses this year to 25 percent amid corporate accounting scandals and concern profit growth will be sluggish. The tumble in stocks has weakened consumer confidence. Economists say that may lead to a decline in consumer spending, which accounts for two-thirds of demand in the economy.
Reports earlier this week showed the US economy expanded at less than half the rate forecast in the second quarter and that manufacturing growth slowed in July.
The economy grew 1.1 percent in the second quarter, cooling from a 5 percent annual rate of expansion in the January-to-March period. The Institute for Supply Management said its factory index fell to 50.5 in July from 56.2 in June.
State-run CPC Corp, Taiwan (CPC, 台灣中油) yesterday signed a letter of intent with Alaska Gasline Development Corp (AGDC), expressing an interest to buy liquefied natural gas (LNG) and invest in the latter’s Alaska LNG project, the Ministry of Economic Affairs said in a statement. Under the agreement, CPC is to participate in the project’s upstream gas investment to secure stable energy resources for Taiwan, the ministry said. The Alaska LNG project is jointly promoted by AGDC and major developer Glenfarne Group LLC, as Alaska plans to export up to 20 million tonnes of LNG annually from 2031. It involves constructing an 1,290km
‘MAKE OR BREAK’: Nvidia shares remain down more than 9 percent, but investors are hoping CEO Jensen Huang’s speech can stave off fears that the sales boom is peaking Shares in Nvidia Corp’s Taiwanese suppliers mostly closed higher yesterday on hopes that the US artificial intelligence (AI) chip designer would showcase next-generation technologies at its annual AI conference slated to open later in the day. The GPU Technology Conference (GTC) in California is to feature developers, engineers, researchers, inventors and information technology professionals, and would focus on AI, computer graphics, data science, machine learning and autonomous machines. The event comes at a make-or-break moment for the firm, as it heads into the next few quarters, with Nvidia CEO Jensen Huang’s (黃仁勳) keynote speech today seen as having the ability to
NEXT GENERATION: The company also showcased automated machines, including a nursing robot called Nurabot, which is to enter service at a Taichung hospital this year Hon Hai Precision Industry Co (鴻海精密) expects server revenue to exceed its iPhone revenue within two years, with the possibility of achieving this goal as early as this year, chairman Young Liu (劉揚偉) said on Tuesday at Nvidia Corp’s annual technology conference in San Jose, California. AI would be the primary focus this year for the company, also known as Foxconn Technology Group (富士康科技集團), as rapidly advancing AI applications are driving up demand for AI servers, Liu said. The production and shipment of Nvidia’s GB200 chips and the anticipated launch of GB300 chips in the second half of the year would propel
WAIT-AND-SEE: Last month’s consumer price index came in at 2.8%, which boosts expectations that the Fed would proceed cautiously to lower inflation sustainably The US Federal Reserve is widely expected to keep interest rates unchanged at its policy meeting this week, treading carefully amid uncertainty over US President Donald Trump’s economic policies, which include spending cuts and sweeping tariffs. Since January, Trump has imposed levies on major trading partners Canada, Mexico and China, and on steel and aluminum imports, roiling financial markets and fanning fears that his plans could tip the world’s biggest economy into a recession. The Trump administration has also embarked on unprecedented cost-cutting efforts that target staff and spending, while the US president has promised tax reductions and deregulation down the road. However,
RSS