Singapore/London: Investor demand for bonds looks insatiable during 2016’s sell-off in oil and stocks, defying the consensus forecast for yields to rise this quarter.

Two-year yields fell to negative 0.5 per cent in Germany and minus 0.2 per cent in Japan, where the 10-year yield touched 0.025 per cent — all record lows. The yield on a Bank of America Corp. index of sovereign bonds has shrunk to 1.33 per cent, the least based on data that go back to the end of 2005. Benchmark 10-year Treasury yields were little changed at 1.85 per cent Friday, after dropping to the lowest level in a year this week.

The rally is defying economists who said yields would climb after the Federal Reserve raised interest rates in December. Uneven US economic growth is leading investors to scale back forecasts for further increases. Data Friday will show the US added 190,000 jobs in January, versus the average monthly gain of 221,000 in 2015, according to a Bloomberg survey of economists.

“All the trades you were meant to put on after the Fed tightened for the first time, you’ve been killed on them,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “We’ve pretty much priced the Fed out for a full year from now.” The payrolls number “needs to be in excess of 250,000 for the market to not rally” and send yield significantly lower, he said.

Falling Yield

The Treasury 10-year note yield dropped to as low as 1.79 per cent this week, within half a percentage point of the record low of 1.38 per cent set in 2012. The price of the 2.25 per cent security due in November 2025 was 103 19/32 as of 6.27am in New York.

Crude oil declined to a 12-year low in January, and the MSCI All Country World Index of shares has fallen almost 7 per cent this year. Manufacturing is shrinking in the US. The odds of the Fed following its December rate increase with another in 2016 are less than 50 per cent, futures contracts indicate.

Bloomberg surveys of economists project the US 10-year yield will rise to 2.24 per cent by March 31 and to 2.68 per cent by year-end, with the most recent forecasts given the heaviest weightings.

“You’ve had the market pricing out the Fed,” said Roger Bridges, chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management Co.’s Australian unit, which oversees $15.1 billion. Investors are on guard for a smaller-than-expected employment number, he said. “If it’s a real humdinger and falls, then fundamentally, the equity markets won’t like that and will fall and will drive the 10-year down” in yield, Bridges said.

Fed Bank of Cleveland President Loretta Mester said she continues to expect the US economy to warrant gradual interest-rate increases. She is a voter this year on the policy- setting Federal Open Market Committee.

Her remarks followed comments earlier on Thursday from Dallas Fed President Robert Kaplan, who said it was premature to judge what officials would decide about rates at their meeting in March. Kaplan is scheduled to vote on policy in 2017.