BLBG:Treasuries Fall for Third Day Before 10-Year Sale, Retail
Treasuries fell for a third day before the government sells $24 billion of 10-year notes today, the second of three auctions of coupon-bearing debt this week.
Ten-year yields approached a 10-month high before data this week that economists said will show gains in retail sales and a drop in jobless claims. Federal Reserve Bank of Philadelphia President Charles Plosser said a decline in unemployment by year-end would warrant a reduction in central bank debt purchases, while Kansas City Fed President Esther George said the bank may trigger instability when it starts to sell assets.
“Treasury yields will go higher,” said Mohit Kumar, head of Europe and U.K. rates strategy at Deutsche Bank AG in London, who forecasts the 10-year yield to rise to 2.75 percent this year. “Economic data is coming out better. The Fed will signal a pause in asset purchases at some point before the year-end.”
The Treasury 10-year note yield climbed one basis point, or 0.01 percentage point, to 1.99 percent as of 10:05 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent security due in November 2022 fell 1/8, or $1.25 per $1,000 face amount, to 96 3/4. The yield climbed to 2.06 percent on Feb. 4, the highest level since April 12.
Treasury Auction
The 10-year notes scheduled for sale today yielded 2.03 percent in pre-auction trading, compared with a nine-month high of 1.86 percent at the previous auction of the securities on Jan. 9. Investors submitted orders to buy 2.83 times the amount of available debt last month. The Treasury Department will auction $16 billion of 30-year bonds tomorrow.
Yesterday’s sale of three-year debt drew a yield of 0.411 percent, compared with a forecast of 0.409 percent in a Bloomberg News survey of seven of the Fed’s 21 primary dealers. Buyers bid for 3.59 times the amount of securities offered, matching the average for the past 10 auctions.
Retail sales in the world’s biggest economy increased 0.1 percent last month after a 0.5 percent advance in December, according to the median forecast of 80 economists surveyed by Bloomberg before today’s Commerce Department report.
Analysts predicted in a separate survey that claims for unemployment benefits fell to 360,000 in the period ended Feb. 9, compared with 366,000 in the previous week. The Labor Department will publish the figures tomorrow.
‘Rather Bullish’
“A gradual recovery will take place later in the year, but we’re rather bullish on Treasuries in the near term,” said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas SA in Tokyo. The bank sees the 10-year yield at 1.75 percent by the end of the quarter before rising to 2.4 percent by Dec. 31, he said.
The moving average convergence/divergence for the benchmark U.S. yield was 0.0418, below the so-called signal line of 0.046. The figure is calculated by subtracting the 26-day exponential moving average from the 12-day average. A reading below the signal line indicates the rate may fall.
The Bank of America Merrill Lynch U.S. Treasury Index showed the notes were little changed this month after handing investors a 1 percent loss in January, the worst start to a year since 2009. The bank’s MOVE Index, which measures price swings based on options for U.S. debt, dropped to 59.8 basis points yesterday, the least since Jan. 24.
Fed Purchases
The Fed plans to buy today as much as $1.75 billion of Treasuries due from February 2036 to November 2042, according to the New York Fed’s website. The central bank is purchasing $85 billion a month of government and mortgage debt in the third round of so-called quantitative easing.
Fed Bank of Philadelphia President Plosser said he expects the unemployment rate to decline close to 7 percent by the end of this year, warranting a reduction in the Fed’s monthly bond purchases.
“If my forecast is right, then I think we should at least have begun backing off on our asset purchases,” Plosser told reporters yesterday after delivering a speech in Stanford, California. “As a practical manner, we will taper” bond buying before halting the quantitative easing program, he said.
Kansas City Fed President George said yesterday at the University of Nebraska-Omaha that the eventual sale of assets from the central bank’s $3.02 trillion balance sheet “could be potentially disruptive to markets.” At her first meeting in January as a voting member of the Federal Open Market Committee, George opposed a decision to press on with monthly bond purchases aimed at spurring growth and reducing unemployment.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
