Related News:
Treasury Five-Year Notes Gain as Outlook on Economy Overshadows Auction
Treasury five-year notes gained before the U.S. sells $37 billion of them as a government report showed an unexpected drop last month in durable-goods orders, increasing speculation America’s economic recovery is slowing.
Treasury notes of all maturities rose before a Federal Reserve report that may show a slackening in economic growth. U.S. gross domestic product slowed in the second quarter, government data this week is forecast to show.
“The more confirmation we get that the recovery is transitioning into a slower growth phase, then prices could be effectively supported here,” said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York.
The five-year note yield fell 2 basis points, or 0.02 percentage point, to 1.77 percent at 11:46 a.m. in New York, according to BGCantor Market Data. It earlier touched 1.79 percent, almost the highest level since July 15.
The benchmark 10-year yield declined 1 basis point to 3.04 percent. It earlier touched 3.06 percent, the highest level since July 15. It was still poised for a monthly loss after falling amid gains by stocks and an easing of speculation that Europe’s debt crisis would worsen.
“People are most concerned about growth expectations,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “Some still think there could be a small downturn and that could be a valid reason to keep rates lower.”
‘Volatile Number’
Orders for durable goods declined 1 percent last month, after a revised 0.8 percent slide in May, a Commerce Department report showed. The median forecast in a Bloomberg survey of 76 economists was for a 1 percent increase.
“The economy is not strong -- I don’t think there’s any question about that,” said Theodore Ake, head of Treasury trading at Societe Generale SA in New York. “Durable goods is a highly volatile number, and it’s definitely showing weakness.”
Today’s central bank report, the so-called Beige Book regional survey, discusses economic conditions as reported by the Fed’s 12 district banks. Fed Chairman Ben S. Bernanke said July 21 “the economic outlook remains unusually uncertain.”
Last month’s survey showed the U.S. economy strengthened in all 12 regions in April and May, while also noting that growth in many was subdued.
‘Momentum Slackened’
“The Beige Book is likely to confirm that the economic momentum slackened again at the end of the second quarter and also at the start of the third quarter,” fixed-income analysts at WestLB AG in Dusseldorf including Michael Leister wrote in an investor note today. “Inflation probably remained modest, which allows the Fed to maintain the fed funds rate at the low level for an extended period.
U.S. gross domestic product growth slowed to 2.5 percent in the second quarter, versus 2.7 percent in the previous three months, according to the median estimate of 80 economists in a Bloomberg survey before the government reports the figure on July 30.
London & Capital Group Holdings Plc, a U.K. fund manager, bought more U.S., German and British debt in the past six weeks, betting the nations’ efforts to control deficits will hamper growth and keep interest rates low.
“We have a constructive outlook on government bonds because of the low growth, low inflation and low interest-rate outlook,” Sanjay Joshi, who oversees about $500 million as a portfolio manager at the London-based company, said in an interview. “We increased our allocation of government bonds including five-year Treasuries, bunds and gilts.”
Rate Bets
Futures on the CME Group Inc. exchange show traders have reduced the chance to 42 percent that policy makers will raise their target lending rate for overnight bank loans by April from 54 percent odds a month ago.
Policy makers cut the target to a range of zero to 0.25 percent in December 2008 to foster economic growth.
U.S. 30-year bond yields rose 2 basis points to 4.10 percent today, and the extra yield investors demand to hold the securities instead of 10-year notes widened to the most in 15 months. The difference in yield, or spread, touched 106.2 basis points, the most since March 2009.
The five-year Treasury notes being sold today yielded 1.805 percent in pre-auction trading, dropping from 1.995 percent at the previous sale on June 23. Investors bid for 2.58 times the amount on offer last month, less than the average of 2.66 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 34.6 percent of the notes, versus the 10-sale average of 46.2 percent.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
Rate These Stories
Rate this Page