Treasury 10-Year Notes Gain for Fourth Week as Economic Recovery Falters
Treasury 10-year notes gained for a fourth week, pushing yields to the lowest since March 2009, as as economic data showed the recovery is losing momentum and the Federal Reserve resumed purchases of U.S. debt.
Yields on two-year notes dropped below 0.46 percent for the first time since the Treasury began issuing the securities on a regular basis in 1975. The U.S. will auction $102 billion of 2-, 5- and 7-year notes next week, the smallest monthly offering of that combination of securities since May 2009. The central bank plans to buy notes due from 2013 to 2014 on Aug. 24 and debt maturing from 2021 to 2040 on Aug. 26.
“You see all the fear again that’s driving rates,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “Money’s being forced to reach for yield, growth is going remain subdued, unemployment is going to remain high, pressure’s going to remain on the economy.”
The 10-year note yield fell 6 basis points to 2.61 percent from 2.67 percent on Aug. 13, according to BGCantor Market Data. The 2.625 percent security due in August 2020 rose 16/32, or $5 per $1,000 face amount, to 100 3/32 yesterday in New York. The yield dropped 38 basis points in the past four weeks.
Two-year note yields dropped as low as 0.4547 percent yesterday. Yield declined 4 basis points the past five days and in 11 of the last 12 weeks. The 30-year bond yield fell 20 basis points since Aug. 13 to 3.66 percent.
Philadelphia Fed
“The rally does appear to have momentum,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of the 18 primary dealers that trade with the Fed. “The market move has been an overreaction to the negative data. There’s also the potential for the Fed to increase the amount of quantitative easing.”
The Philadelphia Fed’s general economic index dropped and weekly unemployment claims unexpectedly declined, reports on Aug. 20 showed.
The index fell to minus 7.7 this month from 5.1 in July. A survey had forecast a rise to 7.2, according to the median estimate of 56 economists in a Bloomberg survey. Readings above zero signal growth in the regional gauge, which covers eastern Pennsylvania, southern New Jersey and Delaware.
Applications for unemployment benefits in the U.S. unexpectedly increased last week to the highest level since November, showing companies are stepping up the pace of firings as the economy slows. Initial jobless claims rose by 12,000 to 500,000 in the week ended Aug. 14, Labor Department said.
Double-Dip Concern
Sales of existing homes fell 14 percent to an annualized pace of 4.6 million in July, the National Association of Realtors is expected to report Aug. 24, according to the median forecast of 43 economists in a Bloomberg News survey.
New home sales were unchanged at an annualized pace of 330,000 in July, the Commerce Department will say Aug. 25, according to the median of a separate forecast by Bloomberg News.
“The strength in Treasuries is warranted as economic data continue to come in week and concerns remain about the potential for a double-dip recession,” said Larry Milstein, managing director in New York of government and agency debt trading at RW Pressprich & Co., a fixed-income broker and dealer for institutional investors. “We may test 2.5 percent on the 10- year note next week.”
The yield on Germany’s 30-year bond fell to a record low after European Central Bank council member Axel Weber yesterday said the central bank may need to keep emergency measures in place through year-end.
Yield Curve
“With U.S. and ECB officials pushing for additional stimulus and quantitative easing if needed, the green light remains for the underlying bid despite the extreme run,” John Spinello, chief technical strategist in New York at primary dealer Jefferies Group Inc., wrote in a note to clients.
The difference between two- and 10-year yields narrowed to as low as 2.06 percentage points this week, the least in almost 16 months. Two-year rates tend to track the Fed’s target for overnight lending because of their shorter tenure. Longer-term yields are more influenced by the size of the government debt and inflation.
The government, in its auction announcement, also reduced the size of a sale of 30-year Treasury Inflation Protected Securities, or TIPS, scheduled for next week to $7 billion from $8 billion. The U.S. has sold $1.44 trillion of notes and bonds at auction so far this year.
The Fed bought $6.16 billion of notes this week, part of its plan to spur the slowing U.S. economy by keeping borrowing costs low.
Treasuries have returned 8.2 percent in 2010 after losing 3.7 percent last year, according to Bank of America Merrill Lynch indexes, as investors sought safety as stocks fell. MSCI’s World Index of shares handed investors a 4 percent loss, accounting for reinvested dividends. U.S. corporate bonds returned 10.4 percent, a separate Merrill index shows.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net
Rate this Page