BLBG:Treasuries Rise Second Day Before Fed Speakers, Factory Report
Treasuries rose for a second day amid speculation Federal Reserve speakers today will damp speculation the central bank is moving toward reducing purchases that have helped cap borrowing costs.
The benchmark 10-year yield fell toward a one-week low as a decline in European stocks boosted demand for safer assets. New York Fed President William C. Dudley speaks in Connecticut on economic conditions, and Fed Governor Jerome Powell will address a Bundesbank reception in New York about financial regulations. Treasuries slid last month as Fed Chairman Ben S. Bernanke said the central bank may taper asset purchases this year. Economists say a U.S. report today will show factory orders rose.
“There’s more dovish language coming out of the Fed since Bernanke’s statement, so I think they’re worried the market read too much into it or thought the Fed would be more aggressive,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “You’ve got a little bit of risk-off sentiment in Europe, which could be seeing Treasuries move with it.”
The U.S. 10-year yield fell two basis points, or 0.02 percentage point, to 2.46 percent at 6:07 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2023 climbed 5/32, or $1.56 per $1,000 face amount, to 93 26/32. The yield dropped to 2.44 percent on June 28, the lowest since June 21.
Fed Buying
The Fed is buying $85 billion of Treasuries and mortgage-backed securities each month to support the economy by putting downward pressure on borrowing costs. Bernanke said on June 19 that policy makers may end purchases next year if the economy achieves the sustainable growth the central bank has sought since the last recession ended in 2009.
Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index rose 1.6 percentage points yesterday to 101.32. It climbed to 110.98 on June 24, the highest since November 2011.
Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, fell 44 percent yesterday to $250.9 billion, the least since May 7. June’s average was $446.2 billion.
The difference between 10- and 30-year Treasury yields shrank last week to the narrowest in 17 months.
Investors should avoid the longest maturities because yields have been too low, said Kathy Jones, a New York-based fixed income strategist at Charles Schwab & Co., which has $2.11 trillion in client assets.
‘Less Volatile’
“You should be in shorter- to intermediate-term bonds,” Jones said yesterday on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “They’ll be a lot less volatile. Then as the rate environment changes and those bonds mature, you’ll have some money to reinvest at higher rates.”
The spread between 10- and 30-year securities was little changed today at 1 percentage point after shrinking to 97 basis points on June 24, the least since January 2012. Longer maturities are more influenced by the outlook for prices.
Ten-year yields may rise to about 3 percent by the first quarter of next year, Jones said.
Factory orders increased 2 percent in May after gaining 1 percent the previous month, according to a Bloomberg News survey of economists before today’s Commerce Department report.
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
