BLBG:Treasury 10-Year Yields Near Highest in Six Weeks on Signs of U.S. Growth
Treasury 10-year yields were four basis points from the highest in more than six weeks before a report this week forecast to show the U.S. economy probably accelerated in the final three months of 2011.
Benchmark 10-year notes held four days of declines as economists also estimate a Jan. 27 report will show that an improvement in employment prospects helped boost household spending. The difference between two- and 10-year yields was three basis points from its widest since Dec. 7 before the Federal Reserve begins a two-day policy meeting after which it will provide forecasts for the benchmark interest rate for the first time.
“We are, over the course of the year, expecting further pressure on U.S. Treasuries as growth and the potential for inflationary pressures return,” said Michael McCarthy, the Sydney-based chief market strategist at CMC Markets Plc. “The break-out in the U.S. equities market together with the better economic data and particularly the better employment data,” is damping demand for Treasuries, he said.
The 10-year yield was at 2.05 percent at 6:36 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due November 2021 was at 99 17/32. The yield yesterday touched 2.09 percent, the most since Dec. 8.
The gap between two- and 10-year yields was 182 basis points today after yesterday widening to as much as 185.
Gross domestic product grew at a 3 percent annual rate in the fourth quarter after expanding 1.8 percent in the previous three months, according to the median forecast of economists surveyed by Bloomberg News before the Commerce Department’s Jan. 27 release. Household purchases increased at a 2.4 percent annual pace from October through December after rising 1.7 percent in the prior period, according to a separate poll.
Treasury Losses
The Standard & Poor’s 500 Index (SPX) rose for a fifth day yesterday, reaching as high as 1,322.28, the most since July 27.
Treasuries have returned a loss of 0.8 percent this month, including reinvested interest, according to a Bank of America Merrill Lynch index. Notes due in 10 years or more declined 3.5 percent, a separate index shows.
The Treasury will sell $99 billion of notes this week, starting with $35 billion of two-year securities today, then $35 billion in five-year debt tomorrow and $29 billion of seven-year notes on Jan. 26.
The two-year notes yielded 0.25 percent in pre-auction trading, compared with 0.24 percent at the previous sale Dec. 19, the lowest since August. Investors bid for 3.45 times the amount for sale last month, down from 4.07 times in November.
Fed Meeting
In Japan, the 10-year note fell for a sixth-straight day, sending the yield up one basis point to 1.005 percent, set for the highest close since Dec. 12.
Declines in Treasuries were trimmed amid prospects policy makers will maintain a pledge to keep rates low. The Fed last week released blank templates showing the format of its forecasts for the benchmark rate, which will be provided to the public for the first time tomorrow.
The Fed said it will offer two charts along with the forecasts. The first will use shaded bars to show in which year participants in the Federal Open Market Committee project that the central bank will first raise rates. The second chart will show projections from each participant for the appropriate federal funds rate target at the end of the next three years and the longer run.
Keep Accommodative Policy
“They’re probably going to err on the side of keeping policy accommodative to ensure recovery,” said Tony Morriss, head of interest-rate research in Sydney at Australia & New Zealand Banking Group Ltd. “This idea that short-term rates will remain low right in toward 2014, at face value, should argue for yields not to rise too far.”
The FOMC left its target for overnight loans between banks in a range of zero to 0.25 percent last month and reiterated that economic conditions may warrant “exceptionally low” rates “at least” through mid-2013. It is forecast to keep the key rate unchanged on Jan. 25, according to economists in a Bloomberg survey.
The Fed is seeking to keep longer-term borrowing costs capped by selling $400 billion of its short-term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders have dubbed Operation Twist.
The central bank plans to purchase as much as $5 billion of debt maturing from January 2018 to November 2019 today as part of the program.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
