BLBG:Treasuries Fall Before Durable Goods, Five-Year Auction
Treasuries fell, pushing 10-year note yields up from a two-week low, before a government report forecast by economists to show orders for U.S. durable goods rebounded in February.
Five-year securities dropped for the first time in six days before today’s $35 billion auction of the debt. Their yields were 79 basis points more than the upper end of the Federal Reserve’s target range for the target lending 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 unlikely to fall as long as market optimism on the U.S. economy holds,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “The durable-goods data is obviously important today. A strong result may see a knee-jerk markdown in Treasuries, but one that may be short-lived.”
Yields on 10-year notes rose three basis points, or 0.03 percentage point, to 2.21 percent at 7:24 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 dropped 7/32, or $2.19 per $1,000 face amount, to 98 1/8.
The benchmark yields fell yesterday to 2.17 percent, the lowest level since March 14. The average over the past decade is 3.86 percent. The yields are two basis points higher than the 200-day moving average after falling below it yesterday. The moving average is seen by some traders as a barrier to further decreases.
Thirty-Year Bonds
Yields on 30-year bonds increased three basis points 3.33 percent. The two-year note yields advanced two basis points to 0.34 percent.
Treasuries have lost 1.2 percent this year in what would be their biggest quarterly decline since the end of 2010, according to Bank of America Merrill Lynch indexes.
Bookings for U.S. factory goods meant to last at least three years rose 3 percent in February after dropping 3.7 percent the month before, according to a Bloomberg News survey before today’s Commerce Department report.
“A lot of good news regarding the economy has been priced in already,” said Michael Leister, a fixed-income strategist in Frankfurt at DZ Bank AG, Germany’s fourth-biggest lender. “We would need to see a large deviation from expectations in the durable-goods data to get a material effect.”
Swap Spread
The difference between the two-year swap rate and the yield on similar-maturity U.S. debt narrowed to 22 basis points, the least in seven months, indicating demand for higher yields outside the sovereign-debt market as the economy grows.
Yields (USGG5YR) on current five-year debt increased two basis points to 1.04 percent before today’s auction, the second of three note offerings this week totaling $99 billion.
The five-year securities being sold today yielded 1.06 percent in pre-auction trading, compared with 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.
The $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 due to sell $29 billion of seven-year securities tomorrow.
Fed Operation
The Fed is scheduled to buy as much as $5.25 billion of Treasuries maturing 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. The central bank increased its assessment of the economy at its March 13 meeting while reiterating its pledge to keep the target lending rate low at least until late 2014.
The U.S. jobless rate fell to 8.3 percent in February, the lowest level in three years, the Labor Department said March 9. The Institute for Supply Management’s factory index shows 31 months of expansion.
“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. You could get a bit of a moderation.”
Treasuries rose yesterday after reports showed declines in consumer confidence and home prices.
The Citigroup Economic Surprise Index (CESIUSD), which shows whether U.S. data beat or fell short of forecasts, decreased to a four- month low of 23.6 yesterday.
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.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
