Treasuries fell for a third day, the longest losing streak in almost six weeks, as a surge in new- home construction to the highest level in four years reduced demand for the safety of U.S. government debt.
Benchmark 10-year yields climbed to the highest in almost a month after Spain kept its investment-grade debt rating from Moody’s Investors Service. Yields on 10- and 30-year debt rose above their 200-day moving averages before European leaders gather tomorrow in Brussels. U.S. government debt has handed investors a 0.4 percent loss this month, according to Bank of America Merrill Lynch indexes.
“Housing is one of the bright spots in the economy and Spain’s ratings were not cut to junk, so that was positive,” said Dan Mulholland, head of U.S. Treasury trading in the capital-markets unit of BNY Mellon Corp. in New York. “We tested the 200-day moving average -- the long end has tended to lead the market both up and down.”
The benchmark 10-year yield climbed 10 basis points, or 0.10 percentage point, to 1.82 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The yield, which surpassed the 200-day moving average of 1.808 percent, is the highest since Sept. 19 and the gain is the most since Sept. 14. The 1.625 percent note due in August 2022 dropped 7/8, or $8.75 per $1,000 face amount, to 98 1/4.
The yield on the 30-year bond rose as high as 3 percent, the highest level since Sept. 19. It traded above its 2.93 percent 200-day moving average.
U.S. stocks rose 0.4 percent after the biggest gain in a month for the Standard & Poor’s 500 Index (SPX) yesterday.
Yields on the 10-year security are 25 basis points higher than the average for comparable debt of nations from Germany to Australia, above the average of 16 basis points in the past year, data compiled by Bloomberg show.
Treasuries are the least expensive in almost two months. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.77 percent today, the least costly level since Aug. 21. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for the past 10 years is 0.44 percent. The all-time low was negative 1.02 percent on July 24.
Housing starts jumped 15 percent to an 872,000 annual rate last month, the most since July 2008 and exceeding all forecasts in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. The median estimate of 81 economists surveyed by Bloomberg called for 770,000. An increase in building permits may mean the gains will be sustained.
“If housing is recovering, it’s obviously positive for risk in general, and you see the Treasury market cheapening up,” said Scott Sherman, an interest-rate strategist in New York at Credit Suisse Group AG, one of 21 primary dealers that trade directly with the Federal Reserve.
Treasuries headed for their longest losing streak since Sept. 6 after Moody’s kept Spain’s rating at investment grade, citing a reduction in the risk of the country losing market access because of the European Central Bank’s willingness to buy its debt. Moody’s assigned a negative outlook on Spain’s Baa3 sovereign debt, one step above junk, the New York-based company said in a statement yesterday.
Spanish government bonds rose, pushing 10-year borrowing costs down to 5.47 percent, the lowest since April 4, before European leaders gather for a two-day summit in the Belgian capital starting tomorrow.
“There’s a little bit more optimism as it relates to Europe,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “There’s a settling of risk in Europe at this point -- not that it’s behind us, but it’s weighing on Treasuries. The meetings in Europe will dominate our trading outlook.”
A measure of stress in U.S. credit markets, which falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities, reached a record low level on an intraday basis.
The U.S. two-year interest-rate swap spread, the difference between the two-year swap rate and the comparable-maturity Treasury yield, narrowed to as low as 8 basis points in New York, according to data compiled by Bloomberg. The figure is the least on an intra-day basis since Bloomberg started keeping data in November 1988. It is down from a high this year of 49.25 basis points on Jan. 3.
Treasuries dropped yesterday after Germany signaled it may be open to a bailout for Spain as Prime Minister Mariano Rajoy sought ways to pay the nation’s debt and cut the budget deficit.
U.S. government securities also fell this week as reports showed gains in retail sales and industrial production. Consumer prices climbed 2 percent in September from a year earlier, the most in five months, the Labor Department said yesterday.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, widened three basis points to 2.49 percentage points. It touched 2.73 on Sept. 17, the highest since 2006. The average over the past decade is 2.17 percentage points.
The U.S. will sell $7 billion in 30-year TIPS tomorrow. At the previous auction of the debt on June 21, the U.S. sold an equal amount of the securities at a record low yield of 0.520 percent.
The Fed is swapping short-term Treasuries in its holdings for longer maturities to put downward pressure on borrowing costs, part of its efforts to support the economy.
The central bank sold $7.366 billion of Treasuries due from March 2015 to May 2015 today as part of the plan, according to the Fed Bank of New York’s website.
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