NEW YORK- US Treasuries rallied on Tuesday, pushing two-year yields to their lowest in a month, boosted by safe-haven demand with the ongoing Mideast conflict and dovish Federal Reserve remarks that suggested the central bank may be done raising interest rates.
Cash Treasury markets were closed for a holiday on Monday, so Tuesday was traders’ first chance to react to Palestinian militants’ attack on Israel over the weekend including overnight comments from Fed officials.
Benchmark 10-year yields posted their largest daily drop since mid-July, while those on two-year notes had their biggest daily decline since late August.
Yields fall when bond prices rally.
“The (Israel) conflict got the ball rolling as far as people moving into Treasuries from the standpoint of safety,” said Ellis Phifer, managing director of fixed income capital markets at Raymond James in Memphis, Tennessee.
“The Fed added a bit of fuel to that move, by sounding a little bit more dovish. They’re trending that way anyway lately.”
Israeli air strikes hammered Gaza on Tuesday, razing entire districts as Israel took revenge for the Hamas assaults that have triggered some of the worst blood-letting in 75 years of conflict.
In afternoon trading, US 10-year yields fell to one-week lows and were last down 12.5 basis points (bps) at 4.657 percent .
US 30-year bond yields slid 11.2 bps to 4.831 percent their largest daily fall since late August.
US two-year yields which tend to reflect interest rate expectations, dropped 9.1 bps to 4.982 percent , after falling to a one-month trough of 4.926 percent .
Raymond James’ Phifer believes US rates have peaked.
