BLBG:Treasury 5-Year Notes Fall Before Job Data Amid Recovery
Treasury (YCGT0025) 10-year notes fell for a seventh day, the longest losing streak in more than five years, before U.S. reports forecast to show claims for jobless benefits declined and a regional index of manufacturing improved.
Benchmark yields climbed to the highest level since October as a gauge of the inflation outlook increased to a seven-month high, damping demand for fixed-income securities. Government bonds around the world have slumped this week as the Federal Reserve raised its assessment of the U.S. economy and said strains in global financial markets have eased.
“The market is on the back foot, so if the data is strong then Treasuries could decline more,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “We’ve seen a fairly sharp move in a short space of time. The catalyst seemed to be the Fed acknowledging the better growth.”
The 10-year yield rose four basis points, or 0.04 percentage point, to 2.31 percent at 9:12 a.m. in London after climbing to 2.35 percent, the highest since Oct. 28. The seven days of yield gains is the most since the period ended June 26, 2006. The 2 percent note maturing in February 2022 dropped 10/32, or $3.13 per $1,000 face amount, to 97 9/32.
Two-year Treasury yields climbed one basis point to 0.39 after increasing to 0.41 percent, the most since July 29. Thirty-year yields advanced three basis points to 3.43 percent. They reached 3.49 percent, the highest since Sept. 2.
Jobless Claims
Applications for jobless benefits fell to 357,000 last week from 362,000 in the previous period, according to a Bloomberg survey before today’s Labor Department report. The Fed Bank of Philadelphia’s general economic index rose to 12 this month, from 10.2 in February, a separate survey showed. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Labor Department data today is also forecast to show the producer-price index rose 0.5 percent in February, the most since September, according to another Bloomberg survey.
“The U.S. economy is on a recovery path,” said Yoshinori Shigemi, a strategist for non-yen debt at RBS Securities Japan Ltd. in Tokyo, a unit of Royal Bank of Scotland Group Plc. “We see an upward trend in Treasury yields in the near term.”
The 10-year break-even rate, a gauge of the outlook for consumer prices derived from the difference between yields on conventional and inflation-linked notes, increased to as much as 2.4 percentage points, the most since Aug. 2.
Treasuries Decline
Treasuries maturing in more than a year have handed investors a loss of 1.7 percent this year, according to an index compiled by the European Federation of Financial Analysts Societies and Bloomberg. The gauge had posted three consecutive quarterly gains since March last year.
The Fed is scheduled to buy as much as $4.25 billion of Treasuries maturing in March 2018 to February 2020 today as part of its so-called Operation Twist program to replace holdings of shorter-term securities with longer-term bonds. The central bank bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011 to spur economic growth through lower borrowing costs.
“Despite some recent signs of improvement, the recovery has been frustratingly slow,” Fed Chairman Ben S. Bernanke said yesterday at a convention in Nashville, Tennessee.
RBS’s Shigemi recommended investors hold debt due in five- to-seven years to profit from so-called roll-down gains. As a bond nears maturity or “rolls down” the yield curve, it is valued at successively lower yields and higher prices. Using the strategy, the security is held for a period of time as it rises in price and is sold to realize the gain. The strategy works when longer maturities yield more than shorter-dated ones.
Europe Concern
The decline in Treasuries was tempered on speculation Europe’s economy will struggle to recover from the sovereign- debt crisis. European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday it’s “essential” for Portugal to stick to its budget deficit target this year.
“A fiscal problem will never be resolved when the economy is in a slump, tax income decreases, a deficit swells and the government cuts spending,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $71 billion in Tokyo. “We’re likely to see news about Europe spur bond buying.”
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
