U.S. 30-Year Bonds Rise After Yields Gained Most in Two Days Since October

Treasury 30-year bonds rose after the biggest back-to-back daily yield gains since October lured investors betting that U.S. securities will retain their refuge appeal with a resolution to Europe’s debt crisis uncertain.

Bond yields fell as data showed the U.S. economy grew less in the third quarter than previously estimated. They pared losses after the Federal Reserve made the last purchase of Treasuries this year in an eight-month program to lower borrowing costs, and as consumer confidence rose and initial claims for jobless benefits unexpectedly declined.

“The long bond was really oversold over the last two days,” said Dan Mulholland, a trader in New York at Royal Bank of Canada’s RBC Capital Markets unit, one of the 21 primary dealers that trade with the Fed. “The market is pretty oversold, so we’re seeing some take-back.”

Yields on 30-year bonds fell two basis points, or 0.02 percentage point, to 2.98 percent at 5:02 p.m. New York time, according to Bloomberg Bond Trader prices. They dropped as much as six basis points earlier to 2.95 percent after rising 21 basis points yesterday and the previous day, the most since gaining 33 basis points in the two days ended Oct. 27. They reached 3.01 percent yesterday, a one-week high. The 3.125 percent securities maturing in November 2041 advanced 13/32, or $4.06 per $1,000 face amount, to 102 27/32.

Long-bond yields have fallen 135 basis points this year, headed for the biggest annual loss since 2008. The securities have returned 32.5 percent in 2011, more than triple the 9.3 percent gain in the broader Treasury market, according to Bank of America Merrill Lynch Indexes.

30-Year Outlook

Thirty-year yields will increase to 3.2 percent by the end of March and to 3.36 percent by June, according to the weighted average estimate of 53 economists surveyed by Bloomberg.

Benchmark 10-year note yields declined two basis points today to 1.95 percent. They fell earlier as much as five basis points to 1.92 percent after touching 1.98 percent yesterday, the highest in a week.

“We’ve chopped around in a range, but we are settling in around these yield levels headed into the end of the year,” said Sean Murphy, a Treasury trader at the primary dealer Societe Generale SA in New York. “If you just looked at U.S. data, it’s generally better. But with Europe, yields are staying lower.”

The Fed bought $4.62 billion of Treasuries due from February 2020 to November 2021 in its program to replace $400 billion of short-term debt in its portfolio with longer-term securities through June.

U.S. GDP

Longer-term debt gained as Commerce Department data showed U.S. gross domestic product rose at a 1.8 percent annual rate from July through September, down from the 2 percent estimated last month. The median forecast of in a Bloomberg News survey projected it would hold at 2 percent. Household purchases increased at a 1.7 percent rate, down from 2.3 percent.

“The weaker data combined with the backup on the long end in recent days is giving investors a reason to look for value,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which oversees $12 billion in Fixed income assets.

Thirty- and 10-year debt pared gains after the Thomson Reuters/University of Michigan final index of consumer sentiment increased to 69.9 this month, versus the median forecast in a Bloomberg News poll for a reading of 68, from 67.7 in November.

Initial jobless claims fell by 4,000 to 364,000 in the week ended Dec. 17, Labor Department figures showed. The median projection in a Bloomberg survey was for an increase to 380,000.

Debt Supply

The U.S. sold $29 billion in seven-year securities yesterday in the final of seven auctions of $177 billion of notes, bonds and inflation-indexed debt over the past two weeks, the most ever.

Investors concerned that longer-term Treasuries might drop further were reassured that 30-year yields stayed below 3 percent and 10-year yields held below 2 percent even amid the debt supply, said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors.

“That we have managed to hold in despite supply gives the market a good reason not to sell off,” Milstein said. “The underlying story is that nothing has really changed. The sovereign-debt crisis continues to overhang the market and give investors comfort to stay in Treasuries, despite these yield levels.”

Greek Creditors

Creditors of Greece, where the debt crisis began, are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the nation’s government bonds, said three people with direct knowledge of the talks.

Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said the people, who declined to be identified because the negotiations are private. The IMF is pushing for creditors to accept a smaller coupon.

Pacific Investment Management Co., operator of the world’s biggest bond fund, said the U.S. economy may stagnate next year.

The U.S. economy may expand 0 percent to 1 percent, weighed down by Europe’s crisis and a slowdown in China, Pimco said in an economic outlook posted on its website. Global growth will slow to 1 percent to 1.5 percent, from 2.5 percent, the Newport Beach, California-based firm forecast.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; 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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