Treasury 10-year yields reached a six- week low amid concern terrorists will retaliate after the death of Osama bin Laden. Twelve-month bill yields fell to a record as the U.S. cuts short-term debt sales.
Six-month rates dropped to a record yesterday as demand for shorter-dated securities was boosted by the reduction in sales and speculation the Federal Reserve will keep monetary stimulus. Threats of reprisals for the death of al-Qaeda’s leader buoyed longer-maturity Treasuries yesterday on demand for safety. The Central Intelligence Agency must stay “vigilant,” said Director Leon Panetta, who oversaw the mission.
“Markets are pricing in a higher risk premium on fear of retaliation acts,” said Kornelius Purps, an interest-rate strategist at UniCredit SpA in Munich. “Investors are a bit nervous after the announcement of the U.S. administration for people to be cautious. This is supporting Treasuries.”
Ten-year yields were two basis points lower at 3.26 percent as of 8:05 a.m. in New York, according to data compiled by Bloomberg, the lowest since March 18, when they touched 3.23 percent. The price of the 3.625 percent note maturing in February 2021 was 103.
U.S. President Barack Obama delivered the news of bin Laden’s killing in a televised address from the White House almost 10 years after the Sept. 11, 2001, attacks. The administration warned that al-Qaeda continues to pose a threat and the U.S. issued travel alerts for Americans abroad.
The 12-month bill rates traded at 0.171 percent, the least since 1959 when Bloomberg data began. The rate has declined from 0.262 percent at the start of the year.
News of bin Laden’s death comes as Democrats struggle to find common ground with Republicans on how to reduce the fiscal deficit. Government debt has more than doubled since the Sept. 11 attacks to $14.3 trillion, partly due to spending on military actions in Afghanistan and Iraq.
Six-month bill rates traded at 0.090 percent, after touching a record 0.0895 percent. The Treasury cut the amount of Supplementary Financing Program bills, or SFPs, it sells on behalf of the Fed by $195 billion to help avoid exceeding the U.S. debt limit. Congress is facing a vote as early as this month on raising the $14.3 trillion U.S. debt ceiling.
“These technical reasons plus the Fed, which is seen on hold for a long period,” are pushing bill yields down, said Christopher Rieger, head of fixed-income strategy at Frankfurt- based Commerzbank AG.
Fed Chairman Ben S. Bernanke signaled April 27 that the central bank will maintain its record stimulus after it ends large-scale bond purchases. The Fed has kept its key rate at zero to 0.25 percent since December 2008 and is aiming to boost growth by completing $600 billion of Treasury purchases through June.
Treasury yields will rise through the rest of the year as economic growth quickens, according to Bloomberg surveys of banks and securities companies.
“Yields will shift up this year,” said Adam Donaldson, Sydney-based head of debt research at Commonwealth Bank of Australia, the nation’s largest lender by market value. “We’re very bullish on the U.S. economy. There is a solid upswing that looks as though it is becoming entrenched.”
U.S. factory orders rose 2 percent in March after a 0.1 percent decline the previous month, according to the median forecast in a Bloomberg News survey of economists before the Commerce Department reports the figure today.
A Labor Department report on May 6 will show the U.S. added jobs for a seventh month in April. Payrolls rose by 185,000 workers last month after a 216,000 advance in March, Bloomberg News surveys show.
The 10-year yield will climb to 3.93 percent by year-end, based on the average forecast of economists, with the most recent forecasts given the heaviest weightings. Donaldson predicts 4 percent.
The Fed is scheduled to purchase $6 billon to $8 billion of Treasuries due from November 2016 to May 2018 today, according to its website.
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