Treasuries Decline as Stocks Rise on Prospect of Aid Package for Ireland
Treasuries fell as an advance in stocks sapped demand for the safest assets and as reports showed that manufacturing in the Philadelphia-area expanded at the fastest pace this year and leading economic indicators rose.
Ten-year note yields were near a three-month high as the index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in mid-Atlantic manufacturing and jobless claims climbed less than forecast, signaling the world’s largest economy is accelerating. Ireland said it may ask for a European bailout. The Federal Reserve today bought $7.2 billion of Treasuries.
“The Treasury market is not priced for that kind of an economic situation,” said Kevin Flanagan, a Purchase, New York- based fixed-income strategist for Morgan Stanley Smith Barney. “The market was fully priced and needed to correct to higher yields to bring fresh buyers in.”
Ten-year note yields climbed four basis points, or 0.04 percentage point, to 2.92 percent at 2:02 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 fell 12/32, or $3.75 per $1,000 face amount, to 97 14/32. The notes last touched a 3 percent yield on July 29.
Philly Manufacturing
Manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged, indicating U.S. and overseas demand will keep fueling factory growth. The Federal Reserve Bank of Philadelphia’s general economic index jumped to 22.5 from 1 a month earlier, exceeding the most optimistic forecast in a Bloomberg News survey.
The index of U.S. leading indicators rose in October for a fourth consecutive month on signs the Federal Reserve was preparing to take additional action to spur the world’s biggest economy.
The New York-based Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent for a second month, matching the median forecast of economists surveyed by Bloomberg News and capping the biggest back-to-back gains since February-March. Six of the 10 components increased.
The Standard & Poor’s 500 Index climbed 1.7 percent.
Debt Sales
The Treasury announced it will sell $35 billion of two-year notes, $35 billion in five-year debt and $29 billion of seven- year securities during three days starting Nov. 22, matching results of a Bloomberg News survey of primary dealers.
The $99 billion total is unchanged from the amount of the October sales of the securities. President Barack Obama has increased U.S. marketable debt to a record $8.54 trillion.
The Irish central bank governor, Patrick Honohan, said he expects the country to tap a loan from the European Union and International Monetary Fund worth “tens of billions.” The country may pay an interest rate close to 5 percent, Honohan said in an interview with the state broadcaster RTE today.
“If these talks reach a successful outcome, the flight-to- quality appeal of U.S. government securities obviously loses some of its luster,” Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients.
Spain sold 3.65 billion euros ($4.97 billion) of bonds at an auction today at lower yields than similar traded securities.
Jobless Claims
The U.S. Labor Department reported that initial jobless claims increased less than forecast to 439,000 in the week ended Nov. 13. The median forecast of 46 economists in a Bloomberg News survey was for a rise to 441,000 from a previously reported 435,000.
The total number of people collecting unemployment insurance dropped to the lowest level in two years, while those receiving extended payments climbed, the department said in Washington today.
“Today’s data on initial jobless claims remind investors that signs of improvement in the economic outlook are likely playing a major role in the recent rise in market interest rates,” Anthony Crescenzi, a bond strategist at Newport Beach, California-based Pacific Investment Management Co., wrote in a note to clients. “Economic activity is moving increasingly toward a self-reinforcing condition.”
The Fed today bought Treasuries maturing from June 2013 to October 2014, according to the New York Fed’s website. Tomorrow it will purchase Treasuries maturity from August 2028 to November 2041, the first long-term debt purchase since it began the second round of debt purchases last week.
Policy makers plan to pump $600 billion into the economy through June by purchasing government bonds, snapping up debt every day this week under the program known as quantitative easing.
The 10-year yield will fall to 2.55 percent by year-end, according to a Bloomberg News survey of banks and securities firms, with the most recent forecasts given the heaviest weightings.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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