Treasury 10-year note yields increased from a two-week low after reports showed U.S. consumer confidence and home sales rose, diminishing the refuge appeal of the securities from Europe’s sovereign debt crisis.
Bonds had rallied earlier for a seventh consecutive day, the longest winning streak in 16 months, after Spanish borrowing costs rose at a debt sale and the International Monetary Fund said Greece’s outlook worsened. Treasury two-year notes being sold today at a $35 billion offering were trading near their record auction low.
“The market is sitting on a fence, trying to figure out which way risk sentiment is going to break, said Adrian Miller, a fixed-income strategist at GMP Securities LLC in New York. “Last week and this week it’s about risk-off, and we’re not sure about Spain.”
The 10-year note yield rose one basis point, or 0.01 percentage point, to 1.72 percent at 11:46 a.m. New York time, according to Bloomberg Bond Trader prices. It fell earlier as much as three basis points to 1.68 percent, the lowest level since Sept. 11. The 1.625 percent note maturing in August 2022 declined 2/32, or 63 cents per $1,000 face amount, to 99 5/32.
Thirty-year bond yields were little changed at 2.90 percent after falling earlier to 2.86 percent.
Treasuries traded at almost the most expensive level in two weeks. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.90 percent. It reached negative 0.91 percent yesterday, the most costly since Sept. 10. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for 2012 is negative 0.74 percent.
The Conference Board’s index of confidence increased to 70.3 in September, a seven-month high, from 61.3 in August, figures from the New York-based private research group showed today. The September figure exceeded the most optimistic projection of economists, whose median estimate in a Bloomberg survey called for 63.1.
The S&P/Case-Shiller index of home prices in 20 cities rose 1.2 percent in July from a year earlier, the biggest 12-month advance since August 2010, data from the group showed today in New York.
Spain’s borrowing costs rose as it sold 4 billion euros ($5.16 billion) of bills at an auction in Madrid today, meeting its maximum target, the Bank of Spain said. The yield on the three-month debt it auctioned was 1.203 percent compared with 0.946 percent at a previous sale on Aug. 28, while the six-month securities yielded 2.213 percent compared with 2.026 percent.
“Europe is still at the forefront as far as the concerns for the market,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 21 primary dealers that are required to bid at government debt auctions. “We’ve seen better buying in the back end. The market’s also waiting for a reaction to whether Spain will request a bailout.”
The auction results boosted speculation Spain may soon ask the European Central Bank for a rescue through its bond-purchase program. Spanish Deputy Prime Minister Soraya Saenz de Santamaria said the country needs to know how much the European Central Bank will spend on debt purchases before it decides whether to ask for a bailout.
IMF Director General Christine Lagarde said yesterday that global growth will probably be weaker than the organization projected in July.
Lagarde said the IMF expects global growth to be “a bit weaker” than it projected in July. The fund had expected growth of 3.5 percent this year and 3.9 percent in 2013. Greece faces a financing gap that won’t be solved by budget measures discussed, she added.
Treasuries rose yesterday as European leaders clashed on ways to curb the euro region’s debt crisis, supporting demand for the safest securities.
Market volatility was at a four-month low yesterday. Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, declined to 57.50 basis points, matching the lowest since May 7. That compared with averages of 74 basis points for 2012 and 94 for last year.
The Fed bought $4.7 billion of Treasuries today maturing between November 2020 and August 2022 as part of its plan to extend the average maturity of its holdings to cap borrowing costs. Investors submitted $9.8 billion in offers.
The central bank said last week that it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month until the economic recovery is well-established. The Fed also extended pledge to keep its benchmark interest rate at virtually zero until 2015 to support economic growth and reduce unemployment.
The two-year notes the Treasury is selling at 1 p.m. in New York yielded 0.275 percent in pre-auction trading, compared with 0.273 percent at the previous sale of the securities on Aug. 28. The record auction low of 0.220 percent was set in July.
Investors bid for 3.94 times the amount of two-year securities sold last month, versus the average of 3.78 times for the past 10 auctions.
Indirect bidders, the category of buyers that includes foreign central banks, purchased 22.3 percent of the securities, the least this year.
Two-year notes have returned 0.2 percent this year through yesterday, while 10-year Treasuries gained 3.6 percent, Bank of America Merrill Lynch indexes show.
The MSCI All-Country World Index of shares has surged 15 percent in the period, including reinvested dividends, according to data compiled by Bloomberg.
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