Treasury yields ticked lower in early Wednesday trading, following the fall in European debt yields, after a round of tepid economic data appeared to furnish new obstacles to the European Central Bank’s plans to normalize monetary policy.
The 10-year Treasury note yield TMUBMUSD10Y, -0.48% was down 1.3 basis points to 3.048%, while the 2-year note yield TMUBMUSD02Y, -0.01% was mostly unchanged at 2.811%. The 30-year bond yield TMUBMUSD30Y, -0.61%gave up 1.3 basis points to 3.298%. Bond prices move in the opposite direction of yields.
The German 10-year bond yield TMBMKDE-10Y, -7.80% fell 1.9 basis points to 0.351%. Trading in German government paper can influence yields for Treasurys as both share safe haven status among investors.
Bond yields fell across Europe after a raft of lackluster eurozone data. Germany’s gross domestic product fell by 0.2% in the third-quarter, the first negative reading since early 2015. And the eurozone composite purchasing manufacturer’s index for November slipped to 52.4, its lowest in nearly four years.
The worsening economic backdrop could complicate the ECB’s efforts to normalize monetary policy. Though, the ECB is expected to announce the end of further bond purchases at the next December meeting, analysts say the central bank may have to cut its growth and inflation forecasts. In turn, investors may push back the timetable for the central bank’s first rate increase since 2011.
“The ECB’s confidence in its own relatively positive growth outlook had waned,” said analysts at ABN AMRO, in a Friday research note.
As the Federal Reserve raises rates and the ECB still unwinding its crisis-era bond-buying program, the widening gap in U.S. and European monetary policy has helped to widen out the once-narrow spread between the German 10-year yield and U.S. 10-year yield to a multidecade high of 278 basis points, or 2.78 percentage points, on Nov. 6. This spread now stands at 270 basis points, and at the start of 2018, that spread was 200 basis points.