BLBG: Treasuries Decline as Data May Justify Extending April Selloff
Treasuries fell before manufacturing and consumer confidence reports that may reinforce speculation the Federal Reserve is on track to raise interest rates, giving investors a reason to add to April’s selloff.
Benchmark 10-year note yields were set for their second consecutive weekly increase. The Institute for Supply Management’s index climbed in April from its lowest level since May 2013, according to the median prediction of analysts in a Bloomberg survey before Friday’s release. Signs of a resilient economy and a Fed that’s ready to lift borrowing costs this year are denting demand for Treasuries.
“Our medium-term view is that Treasury yields go higher,” said Orlando Green, a fixed-income strategist at Credit Agricole SA’s corporate and investment banking unit in London. Green, who predicts the Fed will raise interest rates in September, said an ISM reading near the market consensus will be “still solid -- not spectacular, but solid.”
Benchmark Treasury 10-year yields rose four basis points, or 0.04 percentage point, to 2.07 percent as of 6:53 a.m. New York time, based on Bloomberg Bond Trader data. The yield touched 2.11 percent on Thursday, the highest since March 13. The 2 percent note due in February 2025 fell 11/32, or $3.44 per $1,000 face amount, to 99 3/8.
Weekly Jump
U.S. 10-year yields climbed 16 basis points this week, and are up from 1.92 percent at the end of March.
The ISM’s manufacturing index rose to 52 last month from 51.5 in March, according to economists’ estimates. The University of Michigan will say Friday that its index of sentiment climbed to 96 in April, compared with an initial reading of 95.9, which was already the highest since January, according to another Bloomberg survey of analysts.
The biggest weekly increase in 10-year yields since March 6 came as Fed Chair Janet Yellen and her colleagues reiterated in a statement on Wednesday after a two-day meeting that they believe growth will pick up to a “moderate pace.” Policy makers repeated that they will raise interest rates when there’s evidence of further improvement in job creation and are “reasonably confident” that inflation will quicken back toward the central bank’s 2 percent goal.
Rising bond yields in Europe reduced the the extra yield that investors get for holding Treasury 10-year notes instead of similar-maturity German bunds to 167 basis points on Thursday, the least on a closing basis since April 3. Trading in European government bond markets is closed Friday for a holiday.
“U.S. yields should drift higher through the month as expectations for a Fed rate hike firm up,” said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd., the nation’s largest lender by assets. “If we get a decent run of economic data, then the September meeting comes straight back into focus.”
