Justin Lederer Comments: TREASURIES-Prices climb in safe-haven bid as oil, stocks drop

 December 11, 2015, Yahoo! Finanace UK

* Oil falls to new 7-year low, weighs on Treasury yields 

* Risk-off tone in market aids Treasury prices 

By Gertrude Chavez-Dreyfuss 

NEW YORK, Dec 11 (Reuters) – U.S (Other OTC: UBGXF – news) . Treasury debt prices surged on Friday, as a continued drop in oil prices and weakness in stock markets spurred investors to seek the relative safety of government bonds. 

The slide in oil prices in particular suggests inflation remained subdued, which bodes well for the long-end of the curve because it keeps returns on the bond more or less intact. 

"There’s a risk-off tone in the market," said Justin Lederer, Treasury strategist, at Cantor Fitzgerald in New York. "We’re watching oil and stocks and with oil going down, we’re looking at low inflation that aids the long end of the Treasury curve." 

Crude oil prices hit fresh seven-year lows on Friday as the International Energy Agency warned that global oversupply could worsen in the new year. Brent slipped below $39 per barrel for the first time since December 2008 as the IEA, which advises developed nations on energy, warned that demand growth was starting to slow. 

In late morning trading, U.S. 10-year notes rose 17/32 in price to yield 2.176 percent, down from Thursday’s 2.237 percent. Yields had briefly edged higher after data showed retail sales, excluding automobiles, gasoline, building materials and food services, increased 0.6 percent after gaining 0.2 percent in October. 

The 30-year bond climbed more than a point in price to yield 2.915 percent, down from 2.969 percent Thursday. 

U.S. five-year notes fell 10/32 in price to yield 1.610 percent, down from 1.684 percent late on Thursday. U.S. two-year notes, meanwhile, rose 2/32 in price, yielding 0.915 percent, down from Thursday’s yield of 0.959 percent. 

Investors have pretty much fully priced in next week’s impending interest rate hike by the Federal Reserve, and the debate has largely shifted to how many rate increases there may be in 2016. 

Societe Generale (Swiss: 519928.SW – news) in a research note said it expects the front-end of the curve to "look rather pegged," ahead of the Fed meeting, reflecting a market that has fully priced in a December lift-off. It (Other OTC: ITGL – news) sees about seven hikes over the next four years. 

"We expect this dovish lift-off scenario to continue to mark the dynamic of the curve in the near term, and the front-end is likely to remain pegged after lift-off," Societe Generale said. (Editing by Bernadette Baum)