BLBG:Treasuries Decline Before Debt Sale, Federal Reserve Beige Book
Treasuries declined, pushing 10-year yields toward the most in more than two weeks, before the U.S. sells $21 billion of the notes, the second of three auctions of coupon-bearing securities this week totaling $66 billion.
Thirty-year bonds fell for the fourth time in the past five trading days before the Federal Reserve releases its Beige Book business survey today. Fed Vice Chairman Janet Yellen said asset purchases by the central bank that boost U.S. economic growth will benefit the world. U.S. yields rose before Spanish Prime Minister Mariano Rajoy meets French President Francois Hollande in Paris as investors wait to hear if Spain will request a sovereign bailout.
“Investors are taking a wait and see stance until we see further developments, particularly in Spain,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The U.S. economy is on a relatively steady footing. Some of the pessimism about the U.S. is overdone” and 10-year yields will rise toward 2 percent by year end, he said.
Benchmark 10-year note yields increased two basis points, or 0.02 percentage point, to 1.73 percent at 7:29 a.m. New York time, based on Bloomberg Bond Trader data. The yield rose to 1.74 percent on Oct. 5, the most since Sept. 24. The 1.625 percent security due in August 2022 fell 6/32 or $1.88 per $1,000 face amount, to 99 1/32. Thirty-year bond yields also added two basis points, to 2.95 percent.
Debt Sale
The 10-year notes scheduled for sale today yielded 1.74 percent in pre-auction trading, down from 1.764 percent at a previous sale on Sept. 12. That compares with a record-low auction yield of 1.459 percent on July 11.
Investors at last month’s sale bid for 2.85 times the amount of debt available, versus the average of 3.11 for the past 10 auctions of the maturity. The government is scheduled to conclude this week’s sales with $13 billion of 30-year securities tomorrow.
U.S. government bonds have lost investors 0.4 percent this month, according to Bank of America Merrill Lynch indexes.
Yields are rising amid signs of improvement in the U.S. economy, as President Barack Obama and challenger Mitt Romney prepare to face off in a Nov. 6 general election.
U.S. unemployment declined to 7.8 percent in September from 8.1 percent the month before, the Labor Department reported Oct. 5. Existing-home sales and retail sales were both stronger in August than analysts projected, industry and government reports showed last month.
Technical Analysis
Thirty-year yields are poised to rise further, according to DZ Bank AG, citing the moving average convergence/divergence pattern, or MACD, which tracks the difference between a shorter- and a longer-term moving average, generating buy and sell signals when they cross. The lines cut across each other today.
“This indicates that the bias will be toward higher yields in coming days and possibly weeks,” said Andy Cossor, the Hong Kong-based market strategist at DZ Bank, Germany’s fourth- largest lender. “The yield lows for the long bond for this year have been seen.”
The so-called MACD line is calculated by subtracting the 26-day exponential moving average from the 12-day exponential moving average. The second indicator, called the signal line, is a nine-day exponential moving average of the MACD.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.
High Yield
High-yield bonds are attractive, according to Columbia Management Investment Advisers LLC, which is based in Boston and manages $331 billion.
Returns may be in the “mid-single digit range” over the next 12 months, Jennifer Ponce De Leon, a portfolio manager, wrote on the company’s website Oct. 8.
High-yield bonds are rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.
Schroders Plc (SDR), which is based in London and oversees $305.1 billion, said corporate bonds and emerging market debt should prosper.
Fed efforts to put downward pressure on borrowing costs will intensify the search for yield, Keith Wade, the chief economist, wrote on the company’s website on Oct 8.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
