Treasuries dropped for a second day before a $29 billion sale of seven-year notes and a report that economists said will show durable goods orders rose last month.
Benchmark 10-year notes fell for the third time in four days after the Federal Reserve said yesterday it would maintain stimulus measures with the economy growing at a “moderate” pace. The central bank, in its last meeting before the Nov. 6 presidential election, retained a program of $40 billion in monthly purchases of mortgage-backed debt to spur growth and said “inflation recently picked up somewhat.” Yields will rise to 2.06 percent by June 30, according to a Bloomberg survey.
The 10-year yield rose three basis points, or 0.03 percentage point, to 1.81 percent at 8:24 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 fell 9/32, or $2.81 per $1,000 face amount, to 98 1/4. The yield dropped to a record 1.379 percent on July 25.
U.S. government securities due in 10 years and longer have handed investors a 6.3 percent loss in the past three months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
“I just don’t think there’s any value in Treasuries,” said Roger Bridges, who oversees the equivalent of $15.5 billion of debt as head of fixed income at Tyndall Investment Management Ltd. in Sydney. “Growth isn’t as bad as people were expecting.” He said he favors shorter maturities, those that will fall least if yields increase.
Debt Sales
Today’s auction will be the last of three note sales this week. The U.S. auctioned $35 billion of two-year debt on Oct. 23 and the same amount of five-year securities yesterday.
Orders for U.S. durable goods rose 7.5 percent in September following a 13.2 percent slump in August that was the biggest since January 2009, according to the forecast of 77 economists surveyed by Bloomberg News. The Commerce Department will release the report at 8:30 a.m. New York time.
Labor Department data will show claims for jobless benefits fell by 18,000 to 370,000 last week, another survey shows.
U.S. gross domestic product rose at a 1.9 percent annual rate in the third quarter after expanding at a 1.3 percent pace the prior three months, the median economist estimate showed before advance data from the Commerce Department tomorrow. It would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.
Fed Purchases
The Fed is swapping short-term Treasuries in its holdings for longer-term securities to cap yields as part of its efforts to spur the economy. The central bank plans to buy as much as $5.5 billion of Treasuries due from November 2020 to August 2022 today, according to the Fed Bank of New York’s website.
The latest bond-buying program may lead to higher costs in the economy, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, a financial advisory company based in Philadelphia.
“It does add a level of risk to the inflation outlook,” LeBas said yesterday on Bloomberg Television’s “Taking Stock” with Pimm Fox. LeBas recommended corporate bonds, including high-yield debt, and municipal securities.
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, is 2.49 percentage points. The average over the past decade is 2.17 percentage points.
Demand for yield is showing up in the swap market, where investors exchange fixed and floating-rate obligations.
The difference between five-year swaps and same-maturity Treasury yields narrowed to as little as nine basis points today, the least since March 2010. The spread between the fixed component of the rate exchange and Treasuries yield narrows as demand for assets outside the government debt market increases.
To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
