BLBG:Treasuries Snap Gain Before Durable Goods Orders Report
Treasuries snapped a gain, after yields fell to a two-week low, before a government report economists said will show orders for durable goods at U.S. factories are climbing.
The U.S. plans to sell $35 billion of five-year debt today, the second of three note auctions this week. Five-year yields were 77 basis points more than the upper end of the Federal Reserve’s target range for its benchmark interest rate. The difference has averaged 153 basis points since the central bank set the band at zero to 0.25 percent in December 2008.
“Yields are going to rise,” said Tsutomu Komiya, who helps oversee the equivalent of $111 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second- biggest brokerage by market value. “A pickup in the U.S. economy” will sap demand for Treasuries, he said.
Ten-year yields were 2.19 percent as of 6:11 a.m. in London, according to Bloomberg Bond Trader prices. The price of the 2 percent security due in February 2022 was 98 10/32.
The rate reached 2.17 percent yesterday, the least since March 14. The average over the past decade is 3.87 percent.
Five-year yields were at 1.02 percent.
Bookings for factory goods meant to last at least three years rose 3 percent in February after dropping 3.7 percent the month before, according to the median forecast of 83 economists surveyed by Bloomberg News before the Commerce Department reports the figure.
Quarterly Decline
Treasuries have handed investors a 1.2 percent loss in 2012, heading for their biggest quarterly decline since the last three months of 2010, according to Bank of America Merrill Lynch indexes.
Benchmark 10-year yields are one basis point, or 0.01 percentage point, above their 200-day moving average. The moving average is seen as a barrier by some traders.
Japan’s 10-year rate was 1 basis point lower at 1 percent. The nation’s government debt market gained 0.1 percent this quarter, Bank of America figures show.
The euro area’s debt crisis is “almost over,” Italian Prime Minister Mario Monti said in Tokyo today. Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. recovery isn’t assured.
‘Can Do Better’
Treasuries rose yesterday after reports showed declines in consumer confidence and home prices.
“I think the bond market can do better,” said Ali Jalai, a bond trader in Singapore at Scotiabank, a unit of Bank of Nova Scotia (BNS), one of the 21 primary dealers that underwrite the U.S. debt. “You’ve had a lot of strong data. Is it going to go up from here? You could get a bit of a moderation.”
The Citigroup Economic Surprise Index (CESIUSD), which shows whether U.S. data beat or fell short of forecasts, fell to a four-month low of 23.6.
U.S. joblessness has fallen to 8.3 percent, the lowest level in three years, according to the Labor Department. The Institute for Supply Management’s factory index shows 31 months of expansion.
A $35 billion two-year debt sale yesterday drew a yield of 0.340 percent, compared with a forecast of 0.349 percent in a Bloomberg News survey of seven primary dealers. The Treasury is also due to sell $29 billion of seven-year securities tomorrow.
The Fed is scheduled to buy as much as $5.25 billion of Treasuries due from May 2020 to February 2022 today under a plan to cap borrowing costs by replacing $400 billion of shorter maturities in its holdings with longer-term debt. It has also pledged to keep borrowing costs low at least until late 2014.
Gross’s View
Pacific Investment Management Co.’s Bill Gross, who runs the world’s biggest bond fund, said yesterday that credit expansion by central banks will produce accelerating global inflation and slower growth.
Gross said he favors shorter-duration and inflation- protected debt as well as dividend-paying equities, with a preference for developing markets, in his monthly investment outlook on Pimco’s website.
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 2.33 percentage points. The average over the past decade is 2.14 percentage points.
The five-year notes being sold today yielded 1.05 percent in pre-auction trading, versus 0.9 percent at the previous offering on Feb. 22.
Investors bid for 2.89 times the amount offered in February, versus the average of 2.91 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 41.8 percent of the securities, the least since July at the monthly auctions.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
