BLBG: Treasuries Gain as U.S. Retail Sales Decline More Than Forecast in June
Treasuries rose as a report showed retail sales fell more than forecast in June and investors speculated minutes of the Federal Reserve’s last meeting will show concern the economy may slow.
Ten-year notes ended a five-day losing streak, the longest since August, as Commerce Department data showed sales at U.S. retailers decreased 0.5 percent last month after a revised 1.1 percent drop in May. Economists in a Bloomberg News survey forecast a 0.3 percent decline. The Treasury is scheduled to auction $13 billion of 30-year bonds today, the third of three note and bond sales totaling $69 billion.
“There is weakness throughout the report,” said Steven Ricchiuto, chief economist at Mizuho Financial Group Inc. in New York. “It suggests the positive contribution of the consumer to GDP in the second quarter of the year is going to be minimal.”
The 10-year note yield fell 5 basis points, or 0.05 percentage point, to 3.08 percent at 10:29 a.m. in New York, according to BGCantor Market Data. It rose to 3.13 percent earlier, the highest level since June 25. The 3.5 percent security due May 2020 gained 13/32, or $4.06 per $1,000 face amount, to 103 18/32. The 30-year bond yield dropped 3 basis points to 4.07 percent, and the two-year note yield decreased 4 basis points to 0.63 percent.
Inventories in the U.S. rose 0.1 percent in May, the smallest gain this year, signaling companies are preparing for weaker sales in coming months, another Commerce Department report showed today. Stocks fell, with the Standard & Poor’s 500 Index dropping as much as 0.6 percent.
Fed Minutes
The Federal Open Market Committee will release minutes today of its policy meeting last month and its updated economic forecasts. The central bank cited slowing inflation in its June 23 statement while reaffirming it foresaw “moderate” growth. It kept the benchmark interest rate at a record low range of zero to 0.25 percent, where it has been since December 2008.
“There is speculation that the Fed might cut their growth forecasts, speculation about more quantitative easing and still the question of what the Fed might do if there is a double dip, which is supporting Treasures and underscores the reason we are still at these low yield levels,” said Sean Murphy, a Treasury trader in New York at Societe Generale.
Former Federal Reserve Vice Chairman Alan Blinder said yesterday the U.S. economy will probably grow 3 percent to 3.5 percent this year, less than his forecast in December for as much as 4 percent.
Data Gave Pause
“The data over the last couple of months have given pause,” Blinder, a Princeton University economist, said on Bloomberg Television’s “Street Smart” program. “I still doubt we will have a double-dip” recession, he said.
The U.S. lost jobs in June for the first time this year, Labor Department data showed on July 2.
Ten-year yields will advance to 3.36 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. They touched 2.8793 percent on July 1, the lowest level since April 2009, amid concern European efforts to cut government spending would hurt the recovery.
The U.S. consumer-price index fell 0.1 percent in June, a third monthly decline, according to a Bloomberg survey before the Labor Department reports the figure on July 16. Excluding food and energy, prices probably increased 0.9 percent from a year earlier, matching the smallest year-over-year gain since 1966, a separate Bloomberg survey showed.
Inflation Expectations
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed to 1.87 percentage points from this year’s high of 2.49 percentage points in January.
The 30-year bonds scheduled for sale today yielded 4.063 percent in pre-auction trading, compared with 4.182 percent at the previous offering on June 10.
The bid-to-cover ratio at that auction, which gauges demand by comparing the amount bid with the amount offered, was 2.87. The average for the past 10 sales is 2.61.
Thirty-year Treasuries, among the most sensitive to inflation because of their long maturities, have outperformed other U.S. debt this year. The bonds have returned 12 percent in 2010, versus 5.3 percent for the broader Treasuries market, according to Bank of America Merrill Lynch indexes.
Ten-year notes fell for a fifth day yesterday as the U.S. sold $21 billion of the securities and stocks rallied around the world, damping demand for the safest assets.
The auction drew a 3.119 percent yield, compared with a forecast of 3.109 percent in a Bloomberg News survey of eight of the Fed’s 18 primary dealers.
The Treasury sold $35 billion in three-year debt on July 12 at 1.055 percent, the lowest yield on record at an auction of the security.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net
