Treasury 10-Year Yields Increase for a Fourth Week as Economy Strengthens
Gary Pollack
Brian Marcus/Bloomberg
“Economic data of late has been better, and with firms upping their growth forecasts the risk is to higher yields from here,” said Gary Pollack, who helps oversee $12 billion as head of fixed income trading at Deutsche Bank AG’s private wealth management unit in New York.
“Economic data of late has been better, and with firms upping their growth forecasts the risk is to higher yields from here,” said Gary Pollack, who helps oversee $12 billion as head of fixed income trading at Deutsche Bank AG’s private wealth management unit in New York. Photographer: Brian Marcus/Bloomberg
Dec. 15 (Bloomberg) -- Former Federal Reserve Bank of Richmond President Alfred Broaddus talks about the outlook for U.S. Treasuries, Fed monetary policy and the performance of the U.S. economy. Broaddus speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Dec. 15 (Bloomberg) -- David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley, discusses the Treasury market, economy and inflation risk. He talks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)
Treasury 10-year note yields rose for a fourth week, the longest stretch of gains in 19 months, as reports showing the economy expanded, consumer spending advanced and orders for capital goods increased bolstered speculation the recovery is gathering momentum.
Government securities have lost 2.4 percent in December, the biggest monthly drop in a year, according to Bank of America Merrill Lynch index data. The Treasury will sell $99 billion of two-, five- and seven-year notes next week, the same amount in the previous two months.
“Economic data of late has been better, and with firms upping their growth forecasts the risk is to higher yields from here,” said Gary Pollack, who helps oversee $12 billion as head of fixed income trading at Deutsche Bank AG’s private wealth management unit in New York.
The 10-year note yield advanced five basis points, or 0.05 percentage point, to 3.39 percent, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 dropped 13/32, or $4.06 per $1,000 face amount, to 93 21/32.
Ten-year yields touched a seven-month high of 3.56 percent on Dec. 16 and extended their stretch of weekly increases to the longest since May 2009, when they completed a seven-week gain on concern government borrowing would overwhelm demand.
Trading of Treasuries is closed today for observance of Christmas. U.K. trading will remain closed Dec. 27 and Dec. 28 in observance of Christmas and Boxing Day.
Treasury Volume
About $89 billion of Treasuries changed hands yesterday through ICAP Plc, the lowest level since Dec. 24, 2009, which was the day before Christmas last year. The average daily volume this year has been $251 billion, according to figures from the company, the world’s largest inter-dealer broker.
The Treasury announced yesterday that it will auction $35 billion in two-year notes on Dec. 27, the same amount of five- year debt the next day and $29 billion in seven-year securities on Dec. 29.
“Next week is all about supply,” said David Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The economic data has improved enough to make us believe that the double-dip risk has decreased, but at the same time there is more balanced information here than meets the eye. We still have 9.8 percent unemployment and very low inflation. The market is trying to find some stability.”
Consumer Spending
Household purchases rose 0.4 percent after a 0.7 percent increase in October that was almost twice as large as previously estimated, figures from the Commerce Department showed yesterday. The agency also reported a 2.6 percent gain in bookings for capital goods such as computers and electronics. The Fed’s preferred measure of inflation held at a record low.
The U.S. economy expanded at a 2.6 percent annual rate in the third quarter after a 1.7 percent increase in the second quarter, the Commerce Department said Dec. 22.
The jobless rate rose in November to 9.8 percent, the highest level since April, while hours worked and earnings stagnated, the Labor Department reported Dec. 3.
The Fed purchased $26 billion in Treasury notes this week as a part of its effort to keep long-term interest rates low and generate economic growth. Next week the central bank will conduct two rounds of asset purchases, buying $6 billion to $8 billion in notes maturing from June 2013 to November 2014 on Dec. 28 and $4 billion to $6 billion of notes maturing from June 2012 to June 2013 on the following day.
Fed Debt Buying
The central bank bought $14.6 billion in debt in two operations on Dec. 20, the biggest amount in a single day under the second round of quantitative easing.
“Yields are moving higher as the Fed has been the only buyer with the rest of the market on hold until the new year and pressured from data that has been on the better side of weak,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “Money is flowing out of bond funds, and that sentiment, combined with supply, will push yields higher into the end of the year.”
Bond mutual funds had the biggest client withdrawals in more than two years last week. U.S. bond funds experienced withdrawals of $8.62 billion in the seven days ended Dec. 15, up from $1.66 billion the week before, according to the Investment Company Institute, a Washington-based trade group.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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