Treasury 10-year note yields were six basis points from a two-month high after the German economy expanded in the second quarter at a faster pace than analysts forecast, damping demand for U.S. government debt.
Treasuries were little changed before a report that economists said will show U.S. retail sales rose in July. Treasuries underperformed stocks after the French economy unexpectedly avoided a contraction in the second quarter. Euro- area gross domestic product shrank 0.2 percent in the three- month period, the European Union’s statistics office in Luxembourg said.
“The data has been OK today and we can be relatively optimistic in the near term,” said Padhraic Garvey, head of developed markets debt at ING Groep NV (INGA) in Amsterdam. “It’s entirely conceivable” Treasury yields could rise, he said.
Ten-year notes yielded 1.67 percent at 7:14 a.m. London time, according to Bloomberg Bond Trader data. They reached 1.73 percent last week, the highest since May 30. The 1.625 percent security due August 2022 traded at 99 19/32.
The Federal Reserve is scheduled to buy $4.5 billion to $5.5 billion in Treasuries with maturities of eight to 10 years today, according to the Fed Bank of New York website. The purchases are part of the central bank’s effort to support the economy by putting downward pressure on long-term interest rates.
Volatility dropped for a third session yesterday. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, slid to 67.2 from 2012’s high of 95.4 in June. The average over the past decade is 101.14.
German GDP rose 0.3 percent in the second quarter from the first, the Federal Statistics Office said in Wiesbaden today. Economists predicted a 0.2 percent increase, based on a Bloomberg survey before the report.
Economic growth in France was unchanged in the second quarter from the first, the national statistics office in Paris said today in an e-mailed statement.
Retail sales in the U.S. rose in July for the first time in four months, according to analyst estimates before the data is published today.
The 0.3 percent increase in purchases would follow a 0.5 percent drop in June, according to the median forecast of 85 economists surveyed by Bloomberg News. Another report may show prices paid by producers rose last month.
“The main factors behind the lower interest rate environment -- the sluggish pace of the recovery, easing by the Federal Reserve, and the European crisis -- have not meaningfully changed,” Zach Pandl, the Minneapolis-based senior interest-rate strategist at Columbia Management, wrote on the company’s website yesterday.
The U.S. central bank has held its target for overnight bank lending in a range of zero to 0.25 percent since 2008 and plans to keep it there at least through late 2014 to stimulate the world’s biggest economy. The Fed also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing.
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