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Treasury 10-Year Yield Rises to 2% 1st Time Since April

Photographer: Daniel Acker/Bloomberg

Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago. Close

Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago.

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Photographer: Daniel Acker/Bloomberg

Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago.

Treasury 10-year note yields touched 2 percent for the first time since April as orders for durable goods in the U.S. rose more than forecast, another signal the U.S. economic recovery may be strengthening.

The benchmark yield rose even as Fitch Ratings said the temporary suspension of the U.S. debt limit removes the near- term risk to the nation’s AAA credit rating. Federal Reserve officials start a two-day meeting tomorrow as investors speculate when policy makers will begin to slow stimulus. The U.S. will sell $35 billion in two-year securities today, the first of three note auctions totaling $99 billion this week.

“The economy is probably getting on better footing,” 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 central bank. “People down the road will start speculating when the Fed is going to unwind.”

Benchmark 10-year note yield rose four basis points, or 0.04 percentage point, to 1.98 percent as of 11:11 a.m. New York time, according to Bloomberg Bond Trader data, after rising as high as 2 percent, the highest since April 25. The price of the 1.625 percent security due in November 2022 fell 9/32, or $2.81 per $1,000 face value, to 96 26/32. The yield is still less than the average over the past decade of 3.64 percent.

‘Beach Ball’

“The Treasury market is trading like a beach ball -- you just can’t hold rates down, they keep jumping back up,” said William O’Donnell, head U.S. government-bond strategist in Stamford, Connecticut, at Royal Bank of Scotland’s RBS Securities unit, a primary dealer. “There is a lot of resistance lining up about 2 percent, at 2.09/10 area. A lot of bearish channels and trend lines come in there -- that’s why we’ve been sporting this 1.7 to 2.1 range.”

Resistance is an area on a price graph where analysts anticipate sell orders to be clustered.

RBS forecasts the 10-year yield to decline to 1.90 percent by end of 2013. The yield will rise to 2.25 percent at year-end, according to the weighted average forecast of 76 economists in a Bloomberg survey,

Orders for durable goods in the U.S. rose 4.6 percent in December after a 0.7 percent gain the prior month, a Commerce Department report showed in Washington. The median forecast of 76 economists surveyed by Bloomberg called for a 2 percent gain in overall orders.

Payrolls Report

“The headline looks pretty strong,” Tom Porcelli, chief U.S. economist at primary dealer RBC Capital Markets LLC, said of the durable-goods report. “The biggest report is the payroll, and that’s where our attention will shift this week.”

Employers added 161,000 workers in January, after a 155,000 increase in December, a separate survey showed before the Feb. 1 report from the Labor Department. Other data this week may show manufacturing is stabilizing and consumer spending increased, based on responses from economists.

Treasuries pared losses as pending U.S. home sales declined in December for the first time since August, with the index falling 4.3 percent to 101.7 after a revised 1.6 percent increase the prior month, the National Association of Realtors reported today in Washington. The median forecast in a Bloomberg survey projected no change.

U.S government debt has handed investors a 0.9 percent loss in January, the worst monthly performance since March, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index of shares gained 5.4 percent in January including reinvested dividends, according to data compiled by Bloomberg.

Central Banks

Yields climbed last week when the European Central Bank said lender will repay more of its loans than forecast, spurring optimism the worst of the region’s debt crisis is over.

The ECB said lenders will pay back 137.2 billion euros ($184.7 billion) of its three-year loans, so-called Longer-Term Refinancing Operations, this week. The figure compares with the median forecast of 84 billion euros in a Bloomberg survey of economists.

Fed policy makers said they may end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid- or end-of-year finish, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering.

Central banks in the U.S., the U.K. and Japan are all buying bonds to pump money into their economies as they try to spur growth. The ECB has indicated it is willing to do so.

“Bond yields depend on how long Fed stays low & when/if U.S. reaches 6.5% unemployment, 2.5% inflation,” Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, wrote in a Twitter post. “My estimate: 2015.”

The difference between yields on U.S. 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.56 percentage points last week. The average over the past decade is 2.19 percentage points.

To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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