U.S. debt, gold, gain favor as investors seek safety

Wed Feb 8, 2017 6:58pm EST
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By Hilary Russ

NEW YORK (Reuters) - U.S. Treasury yields fell to their lowest levels in weeks on Wednesday in a flight to safety that also helped lift gold to a three-month peak amid political risks in Europe and worries over U.S. President Donald Trump's policies.

Political concerns, including a strong showing by far-right candidate Marine Le Pen in France's presidential race, sent a wave of overseas buyers to Treasuries, which offer a sizeable yield premium over government bonds from countries in Europe.

"Across the developed world the U.S. is still pretty much the high-yielding choice and I would argue the U.S. economy is by far the strongest of those choices," said Dominic Pappalardo, director of the taxable portfolio management team at McDonnell Investment Management in Oakbrook, Illinois.

"If you’re in much of Europe or Asia where you have rates near zero as well as a tremendous amount of economic uncertainty, getting 2-1/2 percent on your money is really, really attractive."

Yields on 7-, 10- and 30-year Treasuries US7YT=RR US10YT=RR US30YT=RR fell to their lowest levels since mid-January, while 5-year note yields US5YT=RR hit their lowest since Dec. 8.

Spot gold XAU= hit a three-month high of $1,244.67 an ounce before paring gains slightly.

"There's underlying demand for gold as a hedge against political uncertainties on both sides of the Atlantic," said Ole Hanson, head of commodity strategy at Saxo Bank.

Even so, any corresponding U.S. risk-off sentiment was little evident on Wall Street, where stocks ended mostly flat. Investors were digesting mixed earnings reports and the Dow Jones Industrial Average slipped as bank stocks weighed.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., February 7, 2017. REUTERS/Brendan McDermid