Auction of Treasury Inflation Protected Securities coming up
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Thursday, pushing yields down from recent highs, as economic data around the world called into question the recent optimism about the global growth outlook and shift out of U.S. debt.
Bonds pared gains briefly after a report showed U.S. jobless claims declined a little more in the latest week than analysts predicted.
Yields on 10-year notes 10_YEAR -1.26% , which move inversely to prices, declined 4 basis points to 2.26%. A basis point is one one-hundredth of a percentage point.
The benchmark securities recently touched their highest yield level since late October after a run from 2% two weeks ago.
Yields on 5-year notes 5_YEAR -2.54% fell 5 basis points to 1.10%, after earlier this week reaching their highest level since early August.
Thirty-year bond yields 30_YEAR -0.62% slipped 3 basis points to 3.35%, after having touched their highest level since September earlier this week.
Downward revisions to reports on housing prices and an index of leading indicators pushed yields towards their lows of the session. See more on LEI.
Treasury prices had pared ground earlier after the Labor Department said first-time filings for unemployment benefits fell by 5,000 to a seasonally adjusted 348,000, the lowest level since February 2008. Read about jobless claims.
“The four-week average remains well below the 400,000 mark, suggesting that the jobs market remains on a decent footing,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors.
Treasury gains began during the Asian session, when a March survey showed Chinese factory activity is slowing sharply. Read about China’s manufacturing.
Weaker-than-expected purchasing managers’ index readings in Europe fed into fears the region slipped into and remains in recession. See story on Europe’s PMIs.
“One-off data is one thing, but the consistency of this across the globe surely makes one pause in the confidence that the prior couple of months may have instilled,” said bond strategists at CRT Capital Group.
However, analysts don’t think the data will necessarily cause a sharp flight to safety, just push yields back towards what they now consider the bottom of a higher range after the latest selloff. Ten-year yields are seen trading between 2.40% and 2.10%.
“There is some immediate resistance at 2.25% that we need to get through. After that, I expect 10-years to rotate all the way back to 2.10% (at least), which is the top of the former range and the mid-point of the broader range that we’ve been in since early August of last year,” said Bill O’Donnell and John Briggs, bond strategists at RBS Securities.
Treasury bonds are considered good to hold during periods of economic weakness, because the steady coupon helps boost returns while other assets, including equities, may decline.
TIPS auction
Still to come is the Treasury Department’s auction of $13 billion in 10-year Treasury Inflation Protected Securities. See recent Treasury auction results.
Some analysts say inflation-protected securities are better now relative to regular, or nominal Treasury notes because they give investors a fluctuating rate of inflation plus a coupon. As the risks of inflation rise — like now due to oil prices and an improving economic outlook — TIPS become more attractive.
The gap in yields between regular 10-year notes and comparable TIPS was about 2.38 basis points, or 2.38 percentage basis points, according to TD Securities. That spread, called the breakeven rate, is also a real-time indicator of the multi-billion dollar TIPS markets’ expectations of inflation over the life of the debt. That’s off its recent highs.
“We see the fair value of 10-year breakevens in 240 to 245 basis point range,” strategists at Barclays Capital wrote in a note. They added they “like being long TIPS versus nominals.”
Also, the government said that next week it would sell $25 billion in 2-year notes 2_YEAR -0.79% , $35 billion in 5-year debt and $29 billion in 7-year notes 7_YEAR -1.71% .
Also, Federal Reserve Chairman Ben Bernanke’s second of four university lectures on the central bank begins at 12:45 Eastern. See more on Treasurys, See Bernanke’s prior lecture.
