Primary dealers submitted the highest level of offers since November as the Federal Reserve bought $1.9 billion of Treasuries due from February 2040 to August 2041 as part of its program to boost the economy. Government reports on housing starts and weekly jobless claims boosted speculation that the pace of the economy dims the chances of additional central bank monetary stimulus.
“People are being forced out of positions that they may have put on at not-so-great levels,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The market was looking for the end of the world, looking for the Fed to extend quantitative easing. The better numbers and no bad news out of Europe has put that story on hold.”
The 30-year bond yield rose three basis points, or 0.03 percentage point, to 2.95 percent at 5:01 p.m. New York time, according to Bloomberg Bond Trader data. It touched 2.98 percent, the most since May 14. The price of the 2.75 percent security due in August 2042 fell 20/32, or $6.25 per $1,000 of face amount, to 95 31/32.
The three-day rise in the 30-year yield of 20 basis points is the biggest since the June 4-to-June 6 period when it added 22 basis points.
Benchmark 10-year yields rose two basis points to 1.84 percent, after touching the most since May 11.
Treasuries have handed investors a 1.4 percent loss this month, according to Bank of America Merrill Lynch data. An index of sovereign bonds around the world dropped 0.6 percent, the data show.
Valuation measures show U.S. sovereign securities are the closest to fair value since May 3. The term premium, a model created by economists at the Fed, rose to negative 0.71 percent. It’s climbed from a record negative 1.02 percent on July 24. Negative readings indicate investors are willing to accept yields below what’s considered fair value.
Dealers offered to sell to the Fed $3.58 of debt for every dollar the central bank purchased, the highest proportion of offers for debt maturing in 2036 or later since Nov. 7. Longer- term Treasuries pared gains after the Fed’s purchase, which consisted of three $500 million blocks of securities and one of $446 million.
“Given the market reaction, it seems like these were sold through market prices” or at a price below current trading, suggesting the presence of an “aggressive seller to the Fed,” said Shyam Rajan, an interest-rate strategist with Bank of America Corp., one of the 21 primary dealers that trade with the central bank.
Treasuries also erased gains amid a report that Spain will seek additional financial aid as European leaders seek to contain the region’s debt crisis.
Spain will apply for aid at a meeting of finance ministers and central bank governors next month, allowing the European Central Bank to buy Spanish government debt in the secondary market once approval is won, according to a Medley Global Advisors report Bloomberg News obtained. Medley officials weren’t immediately available to comment.
The 10-day relative-strength index, a gauge of momentum, for the 10-year note, was 70.7 today from 47.5 Aug. 2. A level below 30 or above 70 suggests the yield may change direction. The index reached 28.5 on July 24, the day before the 10-year yields fell to a record low 1.379 percent.
The 10-year yield failed to breach 1.86 percent, its 200- day moving average, according to data compiled by Bloomberg. The yield has been below its 200-day moving average on April 6.
“Yesterday may have represented a bit of a catharsis, a purging of positions,” said Chris Ahrens, head interest-rate strategist at UBS AG in Stamford, Connecticut, one of the 21 primary dealers that trade with the Fed. “The economic backdrop remains shabby. You’re at the top of the band at RSI.”
New-home starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008.
Jobless claims climbed by 2,000 to 366,000 in the week ended Aug. 11, Labor Department figures showed today in Washington. The median forecast of 45 economists surveyed by Bloomberg News called for an increase to 365,000.
The U.S. added 163,000 jobs last month, a government report showed on Aug. 3, more than the 100,000 projected by analysts. Retail sales rose 0.8 percent, the biggest increase since February, Commerce Department figures showed Aug. 14. Industrial production increased 0.6 percent in July from June, the Federal Reserve reported yesterday.
The U.S. central bank has held its target for overnight 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 bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs. It’s now in the process of swapping shorter-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs.
The Treasury announced it will sell $14 billion in 4-year 8-month inflation-indexed notes on Aug. 23. The U.S. has sold $1.327 trillion of securities at auction this year, with investors bidding 3.15 times that amount, surpassing last year’s record bid-to-cover ratio of 3.04.
An index of Treasury Inflation-Protected Securities has declined 2.1 percent this month, based on the Bank of America Merrill Lynch figures. The U.S. consumer-price index rose 1.4 percent in July from the year before, the smallest increase since November 2010, Labor Department data yesterday showed.
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices during the life of the debt, has widened to 2.28 percentage points from 2.07 percentage points on July 26.
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