BLBG:Treasury 30-Year Yield Reaches 5-Week High Before Retail Sales
Treasury 30-year yields reached the highest level in five weeks before a government report that analysts say will show retail sales rose last month, adding to signs of resilience in the world’s largest economy.
So-called long bonds were little changed as the U.S. prepared to auction $13 billion of the securities today, the last of three debt sales this week for a total $66 billion. The Federal Reserve said yesterday it plans to buy $45 billion of U.S. government debt each month from January and took the unprecedented step of linking stimulus measures to unemployment and inflation.
“A number of factors, including the U.S. economic outlook, are pointing to higher yields for long-dated Treasuries,” said Soeren Moerch, head of government-bond trading at Danske Bank S/A in Copenhagen. “Now that the Fed is going to buy Treasuries with maturities of up to five years, the yield curve will probably steepen further.”
The 30-year bond yielded 2.89 percent at 6:04 a.m. New York time after climbing to 2.92 percent, the highest level since Nov. 6. The 2.75 percent security due in November 2042 traded at 97 10/32, according to Bloomberg Bond Trader prices.
The benchmark 10-year yield was also little changed at 1.69 percent after increasing to 1.72 percent, the most since Nov. 7.
U.S. retail sales climbed 0.5 percent in November, after dropping 0.3 percent the previous month, according to the median estimate of 81 economists surveyed by Bloomberg News before the Commerce Department report at 8:30 a.m. in Washington.
Jobless Rate
The Fed’s Open Market Committee said interest rates will stay low “at least as long as” the jobless rate remains above 6.5 percent and if inflation “between one and two years ahead” is no more than 2.5 percent.
The decision by the Fed to buy more securities will follow the expiration at year-end of Operation Twist, a $667 billion program in which the central bank has sold about $45 billion in short-term Treasuries each month and bought an equal amount of longer-term debt. Twenty-nine percent or those purchases were for 20- to 30-year Treasuries.
The Fed “scaled down” its buying of 20- to 30-year bonds, Vincent Chaigneau, head of fixed-income strategy at Societe Generale SA in Paris, wrote in a report today. The difference in yield between 30-year and 10-year debt is unlikely to narrow before today’s auction, he wrote.
The extra yield investors demand to hold 30-year bonds instead of 10-year notes widened one basis point to 120 basis points. The spread expanded to 121 basis points yesterday, the most since Oct. 17.
Bond Auction
The 30-year bonds scheduled for sale today yielded 2.89 percent in pre-auction trading, compared with 2.82 percent at the previous offering of the securities on Nov. 8.
Investors bid for 2.77 times the amount of debt available last month, the most this year.
Economists say a separate government report today will show producer-price inflation is in check even as the Fed increases the amount of stimulus it adds to the financial system.
Wholesale prices declined 0.5 percent in November from the previous month, when they dropped 0.2 percent, according to a Bloomberg News survey.
“Inflation will stay low,” said Shinji Kunibe, chief portfolio manager for fixed-income investment at Nissay Asset Management Corp. in Tokyo. “The Fed purchases will support the Treasuries market.”
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
