Bonds News

TREASURIES-Bonds rally on global equity sell-off

NEW YORK, Jan 22 (Reuters) - U.S. Treasuries rallied on Tuesday, as benchmark yields fell to 4-1/2 year lows on a stampede into safe-haven assets and speculations that the Federal Reserve may cut interest rates prior to next week’s policy meeting.

Growing fears of a worldwide slowdown led by the possibility of a U.S. recession have rattled investor confidence, driven money out of stocks and riskier assets into the relative safety and liquidity of U.S. government debt.

“People are looking at extreme safety, and that’s U.S. Treasuries. It’s really the last man standing,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.

U.S. stock futures are expected to open sharply lower following heavy losses in Japan and a roller-coaster session so far in Europe.

Dow Jones Industrial average futures shed more than 500 points after the U.S. financial markets were shut on Monday for the Martin Luther King holiday. For more details see [ID:nN22468100].

The sharp downturn in global equities, together with protracted problems plaguing the U.S. housing and mortgage markets, have spurred bets that the Fed would be forced to pare the key federal funds rate prior to its Jan. 29-30 meeting.

U.S. interest rate futures suggested that traders were pricing in the likelihood that Fed would lower the borrowing cost of surplus reserves between banks at least three-quarter of a percentage point by next week.

Given the lack of major economic data and Fed official speeches this week, Treasuries will be tied closely to the stock market, analysts said.

The flight into ultra-safe investment pushed the two-year Treasuries yield US2YT=RR briefly below 2 percent for the first time in nearly four years in overseas trading.

The two-year Treasury yield is now more than two percentage points below overnight rates, underscoring the expectations for an aggressive Fed response to help the economy.

Benchmark 10-year note's price US10YT=RR was up 1-5/32, coming off from a 1-24/32 gain in overseas trading. Its yield which moves inversely with its price was 3.492 percent, down 15 basis points from Friday, after sagging to 3.473 percent, its lowest since mid-2003. (Reporting by Richard Leong; Editing by Theodore d'Afflisio)