BLBG:Treasury 10-Year Yields Approach One-Week High Before Three-Year Note Sale
Treasuries 10-year yields approached to within four basis points of a one-week high as the U.S. prepared for the first of three auctions this week amid signs economic growth is accelerating.
The 10-year break-even rate, a gauge of trader expectations for consumer-price inflation, reached the highest level in more than three months. The U.S. plans to sell $32 billion of three- year notes today, $24 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on Feb. 9. The 10-year yield stayed below 2 percent as Greek bailout talks continued, underpinning demand for the safest assets.
“We have a lot of supply across the curve this week so that’s causing a little upward drift in yields, especially in the longer-dated brackets,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “The 10-year yield is still below 2 percent because there is a flight to quality because the situation in Greece is on a razor’s edge. If we get some hiccups in Greece, then Treasuries are the place to be.”
The U.S. 10-year yield was little changed at 1.91 percent at 10:25 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 traded at 100 3/4. The yield climbed to 1.95 percent on Feb. 3, the highest since Jan. 27.
The three-year notes scheduled for sale today yielded 0.33 percent in pre-auction trading, versus 0.37 percent at the previous offer of the maturity on Jan. 10.
U.S. government bonds tumbled on Feb. 3 after the Labor Department said employers added 243,000 jobs in January. The median forecast of economists in a Bloomberg News survey was for 140,000. The jobless rate fell to the least in three years.
Economy ‘Picking Up’
“Yields are going to rise,” said Ali Jalai, a Treasury trader in Singapore at Scotiabank, a unit of Bank of Nova Scotia. “The economy is picking up. Most of the numbers are strong.”
Jalai said he had been predicting 10-year yields at 2.20 percent by March 31 prior to the payroll figures. “If we get another report like that, they’re going to go way beyond 2.20,” he said.
The 10-year yield will advance to 2.55 percent by year-end, according to a Bloomberg survey of financial companies, with the most recent forecasts given the heaviest weightings.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.18 percentage points. It reached 2.2 percentage points earlier today, the most since Oct. 28. The average over the past decade is 2.14 percentage points.
Greek Talks
Greek Prime Minister Lucas Papademos plans to convene a meeting of the nation’s political leaders to seek consensus on the cuts required for a bailout. At stake is whether Greece wins the bailout, secures a debt write-off with private creditors and remains in the euro region.
Treasuries climbed yesterday after Papademos requested the country’s finance ministry prepare a document on the implications of a default, spurring demand for the relative safety of U.S. debt as European officials struggle to solve the region’s fiscal crisis.
‘More Expensive’
“Risk aversion is making Treasuries more expensive than usual,” said Kei Katayama, a bond manager at Daiwa SB Investments Ltd., which has the equivalent of $64.8 billion in assets. “The Fed is still cautious about the economy, and that makes investors more comfortable with Treasuries.”
Ten-year yields may fall to as low as 1.8 percent in the first quarter, he said.
Fed policy makers announced Jan. 25 that they will keep their target for overnight bank lending near zero until at least late 2014. Chairman Ben S. Bernanke said the central bank is considering buying bonds to sustain the expansion.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.
The central bank is scheduled to sell as much as $1.5 billion of Treasury Inflation Protected Securities due from July 2012 to January 2015 today as part of the plan, according to the New York Fed’s website.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
