BLBG:Treasuries Decline for a Second Day Before GDP, Jobless Reports
Treasuries dropped for a second day before data economists said will show gross domestic product rose more than initially estimated and claims for jobless benefits fell, damping demand for the safest securities.
Benchmark 10-year yields approached the highest in more than two years amid speculation the Federal Reserve will reduce the pace of bond purchases as soon as next month. Two-, five-and 30-year securities also fell as concern receded that the U.S. and its allies were preparing for imminent military action in Syria, undermining demand for safer assets. The U.S. plans to auction $29 billion of seven-year debt today, after a sale of five-year notes yesterday drew the least demand in four years.
“The GDP is a potential negative for the market because an upward revision is expected,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The jobless data will be followed very closely for any indications about the outlook for Fed tapering. The military intervention in Syria is on the backburner right now, so I could imagine that markets will breathe a sigh of relief.”
The U.S. 10-year yield increased one basis point, or 0.01 percentage point, to 2.78 percent at 11:20 a.m. London time after rising six basis points yesterday, according to Bloomberg Bond Trader prices. The rate climbed to 2.93 percent on Aug. 22, the most since July 2011. The 2.5 percent note due in August 2023 fell 1/8, or $1.25 per $1,000 face amount, to 97 19/32.
Growth Quickens
The U.S. economy grew at an annualized rate of 2.2 percent in the second quarter, compared with an initial estimate of 1.7 percent released on July 31, according to a Bloomberg News survey before today’s Commerce Department data. Analysts say a Labor Department report will show initial jobless claims fell to 332,000 in the week ended Aug. 24 from 336,000 in the previous period. Payrolls data are due on Sept. 6.
The Fed is scheduled to purchase as much as $1.75 billion of securities maturing from February 2036 to August 2043 today, according to the New York Fed’s website. Debate about when policy makers will start to taper the $85 billion in monthly bond buying has roiled financial markets around the world in the past three months and sparked a selloff in fixed-income assets.
“The trend is for higher Treasury yields as we look toward a reduction of QE3,” said Shinichiro Kadota, a strategist at Barclays Plc in Tokyo, referring to the Fed’s third round of asset purchases, or quantitative easing. “Once we start seeing real improvement in key economic data such as the payrolls and employment numbers, then we can expect to see the Fed tapering trade in full swing.”
Bonds Slide
Treasuries lost 3.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds fell 2.3 percent, while U.K. gilts dropped 3.7 percent, the indexes show.
The seven-year notes being sold today yielded 2.23 percent in pre-auction trading, compared to 2.026 percent at the previous auction on July 25. Investors bid for 2.54 times the amount on offer last month compared to 2.61 at the June sale.
Indirect bidders, the category of investors that includes foreign central banks, purchased 48.6 percent of the securities last month, primary dealers bought 34.9 percent and direct bidders purchased 16.6 percent.
The five-year notes sold yesterday had a bid-to-cover ratio of 2.38, the lowest since July 2009 and compared with an average of 2.74 for the past 10 sales. They drew a yield of 1.624 percent, compared with a forecast of 1.618 percent in a Bloomberg survey of eight of the Fed’s 21 primary dealers.
Military Action
Treasuries rose earlier this week on speculation the U.S., France and Britain were moving closer to military action against Syria after the nation’s government allegedly used chemical weapons against civilians.
“Before acting, we need proof” of chemical weapon use, Najat Vallaud-Belkacem, a French cabinet member and spokeswoman for the government, said today on I-tele. A probe into the chemical attack by United Nations inspectors will be ready in “two or three days,” she said. “It’s important to be anchored in international law.”
U.S. President Barack Obama and U.K. Prime Minister David Cameron face a decision whether to attack Syria without a UN mandate amid Russian resistance, demands for consultation from lawmakers at home and domestic opposition to involvement in another conflict in the Middle East.
“We’ve seen a small reversal in sentiment as markets begin pricing in a delay to a potential Syria air strike,” Deutsche Bank AG analysts including Jim Reid in London wrote in a note to clients. “The strike is running into potential delays with UN inspectors saying they need several more days to carry out their investigations in Syria and to undertake scientific analysis before reporting back.”
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
