BLBG:Treasury Yield Climbs to Highest Since 2010 Against G-7 Peers
Treasuries fell, pushing yields to the highest level since 2010 relative to their Group-of-Seven peers, on speculation a strengthening economy will lead the Federal Reserve to trim its bond-buying program next month.
U.S. 10-year notes declined for a third day before the central bank publishes the minutes of its July 30-31 meeting on Wednesday. The Fed’s first step may be tapering monthly debt purchases in September by $10 billion to a $75 billion pace, according to the median estimate of analysts in a Bloomberg survey concluded last week. Central bankers and policy makers meet this week in Jackson Hole, Wyoming, to discuss the global economy and monetary policy.
“The focus this week is on what’s going to happen with the Fed minutes and at Jackson Hole,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “I don’t think they will talk yields down. Yields can go somewhat higher on the combination of the market positioning for tapering and also the better economic data.”
The benchmark 10-year yield rose three basis points, or 0.03 percentage point, to 2.85 percent at 10:17 a.m. in London, according to Bloomberg Bond Trader prices. The 2.5 percent note maturing in August 2023 fell 7/32, or $2.19 per $1,000 face amount, to 96 31/32. The yield earlier reached 2.87 percent, the highest level since July 2011.
U.S. 10-year securities yielded 40 basis points more than bonds in an index of G-7 debt, the most since May 2010, according to data compiled by Bloomberg based on closing prices.
Everyone ‘Concerned’
Fed policy makers led by Chairman Ben S. Bernanke are contemplating how to end a third round of quantitative easing that has swelled the Fed’s balance sheet to a record $3.59 trillion. The central bank will end purchases in mid-2014, according to the median estimate in a Bloomberg survey of 48 economists conducted Aug. 9-13.
Policy makers on the Federal Open Market Committee hold their next meeting on Sept. 17-18.
“Everyone is concerned about this FOMC meeting,” said Kim Youngsung, head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $101.6 billion in assets. “Bernanke is going to taper in September. Interest rates are going up.”
Sales of previously-owned U.S. homes rose in July, analysts said before an industry report due on Aug. 21. Purchases rose to a 5.15 million annualized rate, according to the median forecast of economists before the National Association of Realtors publishes the data.
Spread Widens
The difference between U.S. two- and 10-year yields expanded to as much as 251 basis points today, the widest level since July 2011.
Yields have climbed too far based on the outlook for Fed tapering, according to Allen Lei at Hontai Life Insurance Co. in Taipei, who helps oversee the equivalent of $6.1 billion.
“The markets over-reacted,” Lei said. “I’ve started to take profits on my short position,” he said, referring to a bet that an asset will decline.
An indicator of momentum used by some dealers signal that Treasuries are oversold. The 14-day relative-strength index for the 10-year yield has risen above the 70 threshold that indicates it has climbed too much. The last time it exceeded that level was July 5 and was followed by a two-week rally.
Bonds declined last week amid concern former Treasury Secretary Larry Summers will win out over Fed Vice Chairman Janet Yellen as the next head of the central bank, according to Jefferies LLC. Bernanke’s term ends in January.
“The growing conviction that Larry Summers as Fed Chairman should be equated with an accelerated rate of tapering has been the primary catalyst to the recent distress in both the bond and stock markets,” Ward McCarthy, the chief financial economist at Jefferies, wrote in a Aug. 16 report. The company is one of the 21 primary dealers that trade directly with the central bank.
Treasuries have lost 3.6 percent this year through Aug. 16, according to Bloomberg World Bond Indexes. German bonds dropped 2.3 percent and gilts slid 4.7 percent.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
