Treasuries were little changed following three days of losses before the U.S. sells $35 billion of five-year notes, the second of three auctions of coupon- bearing debt this week totaling $99 billion.
U.S. 10-year yields were at almost the highest level since April as Federal Reserve Chairman Ben S. Bernanke and policy makers start a two-day meeting after minutes of the December gathering indicated officials began debating an end to bond buying, known as quantitative easing, as early as this year. Investors increased bets to the highest level since 2011 that the price of Treasuries will drop, a survey by JPMorgan Chase & Co. showed.
“Bernanke may clarify that they are committed to QE -- that sets the stage for stability and a move lower in rates,” said Rajiv Setia, head of U.S. rates research in New York at Barclays Plc. “The selloff is an attractive buying opportunity. Our target for year-end is 1.60 percent. We think this is a good opportunity to buy the dip.”
The 10-year note yielded 1.97 percent at 11:31 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent security due November 2022 traded at 96 29/32. The yield climbed to 2.004 percent yesterday, the highest since April 25.
The yield, which dropped to a record 1.379 percent in July, has averaged 3.64 percent during the past decade.
The current five-year note yielded 0.87 percent.
Investors raised bets to the highest level since July 5, 2011, that the price of the securities will drop, according to JPMorgan.
The percentage of shorts in the firm’s “all clients” survey rose to 25 percent in the week ending yesterday, up from 19 percent the previous week. Longs, or bets Treasuries will rise, increased to 13 percent from 7 percent the previous week.
The proportion of net shorts remained steady at 12 percentage points, according to JPMorgan. About 62 percent of the clients surveyed were neutral, down from 74 percent.
The five-year notes being sold today yielded 0.88 percent in pre-auction trading, compared with 0.77 percent at the previous sale of the securities on Dec. 18.
Direct bidders, non-primary dealer investors that place their bids with the Treasury, purchased 30.4 percent of the notes, the second highest after 32.1 percent in September 2004, based on records going back to 2003.
“With the backup in the marketplace, the five-year is very attractive for investors and people trying to get back into the marketplace,” said Thomas di Galoma, a managing director at Navigate Advisors LLC, a brokerage for institutional investors in Stamford, Connecticut.
The U.S. sold $35 billion of two-year notes yesterday and will auction $29 billion of seven-year securities tomorrow.
Treasuries have handed investors a 1 percent loss in January through yesterday, heading for the worst monthly performance since March, according to Bank of America Merrill Lynch indexes.
Ten-year Treasury rates were 18 basis points below the dividend yield on the Standard & Poor’s 500 Index, the narrowest spread since Sept. 14, based on closing prices. The yield on the S&P 500 Index has dropped to 2.14 percent from last year’s high of 2.29 percent reached in November.
The Fed purchased $3.357 billion in Treasuries maturing from February 2020 to November 2022 today as part of its plan to cap borrowing costs. The central bank is purchasing $85 billion of government and mortgage debt each month.
Central-bank policy makers said at their last meeting they may end the purchases sometime in 2013, with members divided between a mid- or end-of-year finish, according to the minutes of the Federal Open Market Committee’s Dec. 11-12 gathering.
Fed Chairman Ben S. Bernanke’s latest round of bond buying will reach $1.14 trillion before he ends the program in the first quarter of 2014, according to median estimates in a Bloomberg survey of economists.
Bernanke will push on with purchases of $40 billion a month of mortgage bonds and $45 billion a month of Treasuries, according to the survey of 44 economists, even as some Fed officials warn his unprecedented balance-sheet expansion will impair efforts to tighten policy when necessary.
A report today showed home prices in 20 U.S. cities rose in November from a year earlier by the most in more than six years. The S&P/Case-Shiller index of property values increased 5.5 percent from November 2011, the biggest year-over-year gain since August 2006. The median projection of 30 economists surveyed by Bloomberg called for a 5.6 percent advance.
The Conference Board’s index of consumer sentiment fell to 58.6 this month from a revised 66.7 in December. The median forecast of economists surveyed by Bloomberg News was for a drop to 64.
U.S. employers added 160,000 workers in January, after a 155,000 increase in December, according to a Bloomberg News survey before a Feb. 1 report from the Labor Department.
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