Government bonds rallied around the world as monetary policymakers in Europe, the U.K., and Canada assume more-stimulative posturesamid concern that falling prices for oil and other goods pose agrowing threat to economic growth.

Longer-maturity debt gained, with yields in Germany, Spain, andSwitzerland reaching record lows after the European Central Bank(ECB) announcement of a larger-than-forecast bond purchase plan,the Bank of Canada's unexpected lowering of its benchmark rate, andBank of England policy makers dropping a call for a rate increase.U.S. yields also approached all-time lows with the FederalReserve forecast to hold interest rates at virtually zero nextweek.

“The central banks have been pushed to justify their existence,”said Richard Gilhooly, an interest-rate strategist in New York atToronto-Dominion Bank's TD Securities unit, one of 22 primarydealers that trade with the Fed. “They've gone into no-man'sland.”

The U.S. 30-year yield fell eight basis points this week, or0.08 percentage point, to 2.38 percent in New York, according toBloomberg Bond Trader prices. The 3 percent security maturing inNovember 2044 rose 1 25/32, or US$17.81 per $1,000 face amount, to113 9/32. The yield fell for a fourth week and reached a record low2.35 percent on Jan. 21.

The effective yield for the Bank of America Merrill Lynch GlobalBroad Market Sovereign Plus Index fell to a record-low 1.14 percentJan. 19. Treasuries have returned 1.7 percent this year, accordingto the Bloomberg U.S. Treasury Bond Index, after adding 6.2 percentin 2014.

The U.S. will sell $26 billion in two-year notes, $35 billion infive-year notes, and $29 billion in seven-year debt on threeconsecutive days starting Jan. 27. The two-year sale was reduced by$1 billion from the prior auction, further limiting the amount ofhigh quality debt available.

Hedge-fund managers and other large speculators reducedpositions that profit from a decline in 10-year note to the leastsince November, U.S. Commodity Futures Trading Commission datashowed. Net-short positions totaled 145,598 contracts as of Jan.20.

U.S. 10-year note yields, which offer 0.87 percentage point morethan other Group of Seven nations, fell to 1.80 percent in theirfourth weekly drop. Germany's 10-year yields reached a record-low0.345 percent Friday, and the nation's five-year yield droppedbelow zero.

“Everything seems to be bullish for Treasuries,” said DavidAder, head of U.S. government-bond strategy at CRT Capital GroupLLC in Stamford, Connecticut.

ECB Demand

The ECB will buy government bonds as part of an asset-purchaseprogram worth about 1.1 trillion euros ($1.23 trillion), or 60billion euros a month, President Mario Draghi announced Jan. 22 inFrankfurt, sparking a jump in European bonds. Along with Canada,Denmark cut interest rates this week, while the Bank of Japanboosted a lending program and stuck to its plan to increase themonetary base at an annual pace of 80 trillion yen ($680billion).

The International Monetary Fund cut its outlook forconsumer-price gains in advanced economies almost in half to 1percent for 2015, the Washington-based lender said Jan. 19. Thecore U.S. personal consumption expenditure is forecast to advance1.6 percent in 2015, below the Fed's 2 percent target.

Italian and Spanish government 10-year debt traded at loweryields than Treasuries, while the euro fell to its lowest levelversus the dollar since 2003, boosting the appeal of U.S.government securities.

“The yield declines are all the more gasp-inducing,” said JimVogel, head of agency-debt research at FTN Financial in Memphis,Tennessee. “Treasuries still lag the global rally. You'll seepeople re-evaluating their portfolio objectives the longer yieldscontinue to shrink.”

The chance of a Fed interest-rate increase by its Octobermeeting was 52 percent, futures data show, down from 72 percent atthe end of 2014. The central bank has kept its target for thefederal funds rate at zero or 0.25 percent since 2008 to support aneconomic recovery.

Investors have been buying U.S. debt even as Fed Chair JanetYellen has signaled that momentum in the labor market will likelyenable the central bank to increase interest rates this year. TheFederal Open Market Committee meets Jan. 27-28.

“All but the Fed seem to be on the move to add stimulus and notto show tightening,” said Michael Pond, head of globalinflation-linked research at Barclays Plc, a primary dealer. “Whatwe're seeing is a lack of risk-taking.”

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