Treasuries Drop on Lower Jobless Claims, $29 Billion Seven-Year Note Sale
Treasuries dropped as a report showed U.S. weekly initial jobless claims were at a four-year low and as the U.S. readies the sale of $29 billion in seven- year notes.
Treasuries fluctuated earlier amid lingering concern Europe’s rescue package for Greece won’t resolve the region’s debt crisis. U.S. government securities have lost 0.9 percent this month, according to Bank of America Merrill Lynch indexes, on signs the global economic recovery is weathering Europe’s sovereign-debt crisis.
“People are setting up for the auctions,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “Demand is going to be fine.”
Yields on 10-year notes advanced two basis points, or 0.02 percentage point, to 2.02 percent at 11:25 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 fell 6/32, or $1.88 per $1,000 face amount, to 99 25/32. Yields touched 2 percent yesterday, the lowest since Feb. 17.
Seven-Year Auction
The seven-year notes being sold today yielded 1.45 percent in pre-auction trading. The prior sale of the security on Jan. 26 drew a record low auction yield of 1.359 percent.
Investors bid for 2.73 times the amount offered in January, compared with an average of 2.81 for the past 10 auctions. The U.S. sold $35 billion of two-year debt on Feb. 21.
Today’s auction is the final of three this week totaling $99 billion. A $35 billion U.S. five-year auction yesterday drew a yield of 0.9 percent, compared with a forecast of 0.901 percent in a Bloomberg survey of seven primary dealers, which are obliged to participate in government debt offerings.
This week’s note auctions and last week’s sale of $9 billion of 30-year Treasury Inflation Protected Securities will raise $47.8 billion of new cash as maturing securities held by the public total $60.2 billion.
Volume in the Treasury market yesterday remained below the one-year average of $275 billion. About $255.44 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker.
Price Swings
Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, closed yesterday at 79.6 basis points, near the lowest level since July 2007. The five-year average is 112 basis points.
Applications for jobless benefits were unchanged in the week ended Feb. 18 at 351,000, the fewest since March 2008, Labor Department figures showed today. The median projection in a Bloomberg News survey called for 355,000 claims, marking the fourth straight week that the figures have been better than forecast.
“The market sold off a little bit on the jobless-claims data,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., one of 21 primary dealers that trades with the Federal Reserve. “This is the survey week for employment so it indicates we may get another strong payroll data.”
Inflation Measure
Economic gains are encouraging traders to increase inflation bets. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt known as the break-even rate, widened to as much as 2.34 percentage points, the most since August. It has averaged 2.14 percentage points during the past decade.
Federal Reserve policy makers set a target of 2 percent for inflation on Jan. 25 and forecast costs in the economy will probably fall short of the goal this year.
The price gauge that the central bank uses is the personal consumption expenditures index, which climbed 2.4 percent for the 12 months ending Dec. 31. The measure increased 1.8 percent after taking out food and energy costs.
The Fed sold $8.6 billion of Treasuries maturing from April 2014 to February 2015 today, according to the New York Fed’s website. The bank is replacing shorter-maturity securities in its holdings with longer-term debt to cap borrowing costs.
Benchmark 10-year note yields may rise to 2.49 percent by year-end, according to the average forecast in a Bloomberg News survey of financial companies, with the most recent projections given the heaviest weightings.
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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