BLBG:Treasuries Fall for Third Day Before 10-Year Sale, Fed Minutes
Treasury 10-year notes declined for a third day as the U.S. government prepared to auction $21 billion of the debt today followed by $13 billion of 30-year bonds tomorrow.
U.S. securities fell along with German bunds and U.K. gilts as speculation waned that Japanese investors will buy them after the Bank of Japan (8301) said it would boost monthly bond purchases to an unprecedented 7.5 trillion yen ($75.4 billion) a month. Federal Reserve Bank of Atlanta President Dennis Lockhart will discuss the economy and monetary policy with reporters today as the central bank releases minutes of its March 19-20 meeting.
“This little upward spike in yields should ensure a decent takedown” at today’s auction, said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “We’ve also seen in the bund space some further consolidation of safe havens, probably triggered by this cooling down of the Japanese buying euphoria which really swept through the markets at the end of last week.”
The 10-year yield rose one basis point, or 0.01 percentage point, to 1.76 percent at 7:14 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due February 2023 fell 1/8, or $1.25 per $1,000 face amount, to 102 1/8. The yield dropped to 1.68 percent on April 5, the lowest level since Dec. 12.
The rate may test levels around 1.80 percent in the next two days, Leister said.
German 10-year bund yields rose two basis points to 1.28 percent and the rate on similar-maturity gilts also added two basis points, to 1.76 percent.
Previous Auction
The 10-year securities being auctioned today yielded 1.77 percent in pre-auction trading. The notes were sold at a yield of 2.029 percent at the previous auction on March 13, versus 2.046 percent on Feb. 13.
Investors bid for 3.19 times the amount of available debt last month, the highest bid-to-cover ratio since October. Indirect bidders, which include foreign central banks, bought 47.7 percent of the securities, the most since December 2011.
The central bank currently buys $85 billion of Treasury and mortgage debt a month in its so-called quantitative easing program to spur the economy by putting downward pressure on borrowing costs.
The “March meeting minutes could hint at Fed purchases tapering off,” Ciaran O’Hagan, the head of European rates strategy at Societe Generale SA in Paris, wrote in a research note today. “Any suggestion of more tapering to come could prove hawkish.”
Fed Policy
The Federal Open Market Committee reiterated last month it will keep the benchmark rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation is for a rate of less than 2.5 percent.
“The economy has surprised to the upside in the first quarter so this idea that QE will last forever I think is a bit rich,” Francesco Garzarelli, the London-based co-head of macro and markets research at Goldman Sachs Group Inc., said in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Guy Johnson. “I’d expect to see some of that reflected in the minutes.”
Garzarelli recommended selling Treasury 10-year futures, targeting a drop to 130, he wrote in a client note today. The contract expiring in June 2013 fell 5/32 to 132 22/32.
The benchmark 10-year yield will rise to 2.3 percent by year-end, according to a Bloomberg survey of economists with the most recent projections given the heaviest weightings.
“In the next six months, yields are more likely to rise,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA. “When we start to see signs of economic recovery, the market will price-in possible unwinding of monetary easing by the Fed.”
Treasuries investors’ expectations for U.S. inflation were near a three-month low. The gap between yields on 10-year notes and inflation-linked securities, the so-called break-even rate, was little changed at 2.45 percentage points after shrinking to 2.43, the narrowest since Jan. 2.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
