Treasury 10-year note yields traded below 2 percent for a fifth day on concern the European debt crisis may worsen and as U.S. jobless claims and home sales missed forecasts, stoking demand for the safest assets.
The U.S. 10-year note has stayed within seven basis points of 2 percent for almost two weeks in the longest stretch below the level since February. Yields increased at French and Spanish bond auctions, underlining concern that Europe’s debt crisis is far from over. The U.S. sold a record $16 billion in inflation- linked securities at an all-time low negative yield.
“Fixed-income investors are not ignoring the fact that, over the last three weeks, economic data has been worsening,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “Europe is obviously an important portion of the story.”
The 10-year yield fell one basis points, or 0.1 percentage point, to 1.97 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 rose 2/32, or 63 cents per $1,000 face value, to 100 9/32. The yield has stayed between 1.94 percent to 2.07 percent since April 7.
U.S. government debt was little changed this year as of yesterday, while Treasury Inflation Protected Securities rose 2.5 percent, according to Bank of America Merrill Lynch Indexes.
The five-year TIPS were auctioned at a so-called high yield of negative 1.08 percent, the Treasury said, the fifth straight auction with investors willing to pay a premium to guard against the threat of rising consumer prices. The fixed payment on five- year TIPS, known as the real yield, was pushed below zero as the rise in the consumer price index was greater than the yield on regular five-year U.S. notes.
Consumer prices increased 2.7 percent in the 12 months ended in March, the smallest 12-month gain in a year, Labor Department figures showed April 13.
“You are are paying for the privilege of lending to the U.S. government,” said Eric Van Nostrand, an interest-rate strategist in New York at Credit Suisse Group AG, one of 21 primary dealers required to trade Treasuries with the Fed. “It’s the demand for the safest assets. The universe of safe assets that the market perceives as nearly risk free is dwindling.”
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, has widened to 2.23 percentage points from 1.95 percentage points at the end of 2011.
The U.S. announced it will sell $35 billion of two-year notes on April 24, the same amount of five-year debt the following day and $29 billion of seven-year debt on April 26.
Valuation measures show Treasuries are at the most expensive level in six weeks. The term premium, a model created by economists at the Fed, reached negative 0.67 percent, the most expensive since March 7. It closed at negative 0.64 percent. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
“The bond market’s overpriced,” Daniel Fuss, vice chairman of Loomis Sayles & Co., said in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. “Treasuries are priced higher than a kite. We’ll stay overpriced as long as our central bank and the banks offshore want it to be.”
The Fed purchased $1.668 billion of Treasuries due from August 2022 to February 2031 today as part of a plan to replace $400 billion of shorter-term debt in its holdings with longer maturities to keep borrowing costs down and boost the economy, according to the New York Fed’s website.
Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, dropped to 72.2 basis points, below this year’s average of 79 basis points. It reached 93.3 basis points on March 20, the highest level this year.
Trading volume was below average today, with about $205 billion of Treasuries changing hands through ICAP Plc, the world’s largest interdealer broker as of 5:01 p.m. in New York. Volume reached $439 billion on March 14, the highest since August. The average in 2012 is $252 billion.
Treasuries have fluctuated between gains and losses each day this week. They rose yesterday as concern about Europe’s debt crisis boosted demand for the safest assets.
Spain auctioned 2.54 billion euros of two- and 10-year debt, compared with a maximum target of 2.5 billion euros ($3.34 billion). The nation sold its 10-year benchmark bonds at an average yield of 5.743 percent, compared with 5.403 percent when it last sold them in January.
France sold 2.7 billion euros of benchmark five-year debt at an average yield of 1.83 percent, up from 1.78 percent on March 15. It also sold notes due in September 2014 and April 2015 and index-linked securities.
The bonds sales came amid Spanish Prime Minister Mariano Rajoy’s struggle to meet deficit targets and as the French presidential elections have driven up yields in the euro area.
Jobless claims rose last week to 386,000, a Labor Department report showed. The median forecast of 47 economists in a Bloomberg News survey was for a drop in jobless claims to 370,000 in the week ending April 14 from a revised 388,000 the previous week.
Sales of previously owned U.S. homes in March unexpectedly fell for the third time in the last four months, with purchases dropping 2.6 percent to a 4.48 million annual rate from 4.6 million in February, the National Association of Realtors reported in Washington. The median forecast of economists in a Bloomberg News survey called for an increase to 4.61 million. In January, sales at a 4.63 million rate were the strongest since May 2010.
Home starts slowed to a five-month low in March, the Commerce Department said April 17.
“Europe is scaring a lot of people again,” said Charles Comiskey, head of Treasury trading at primary dealer Bank of Nova Scotia (BNS) in New York. “Things seem to be deteriorating and that brings nervousness into the U.S. Treasury market. You are getting weaker data in the U.S.”
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