U.S. 10-Year Yield Rises Above 2% Before Fed Minutes

Treasury 10-year yields rose above 2 percent for a fourth day amid speculation minutes of the Federal Reserve’s latest policy meeting will provide more detail on the timing of a withdrawal of stimulus.

U.S. government securities extended last week the worst start of a year for benchmark 10-year notes since 2011 amid signs America’s economic recovery is gaining momentum. The Fed bought $1.45 billion in bonds today, including 30-year securities the U.S. sold last week, as part of its program to spur the economy. Treasuries, which were little changed earlier today, fell as risk appetite increased and stocks climbed.

“Investors are waiting for something to give them direction, but until then we’ve settled around these levels,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We’ve seen a little risk-on trading with equities and risk sentiment improving that has taken safe-haven buying out of the market. The market is very boring today.”

Ten-year note yields rose three basis points, or 0.03 percentage point, to 2.03 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. The yields, which reached a 10-month high of 2.06 percent on Feb. 14, fell as much as two basis points earlier today. The price of the 2 percent notes due in February 2023 decreased 7/32, or $2.19 per $1,000 face amount, to 99 3/4. Treasuries trading resumed today after being closed worldwide yesterday for a U.S. holiday.

The yields have climbed 27 basis points since Dec. 31. They are trading below the 10-year average of 3.63 percent. Yields added five basis points last week.

Long Bonds

Thirty-year bond yields increased three basis points to 3.21 percent after rising one basis point last week.

Treasury trading volume fell to $221 billion today, the lowest level since Feb. 11, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. Daily volume averaged $246 billion over the past year.

The Standard & Poor’s 500 Index increased 0.7 percent to 1,530.94, its highest level in more than five years.

U.S. 10-year notes have lost 1.9 percent this year, according to Bank of America Merrill Lynch Indexes. Treasuries overall have dropped 0.9 percent, and the Standard & Poor’s 500 Index has returned 6.9 percent including reinvested dividends.

Fed Minutes

Minutes of the Fed’s January meeting are due tomorrow. The December meeting’s minutes, released Jan. 3, showed policy makers were divided on whether to end bond purchases in the middle or end of this year. Ten-year yields climbed to an eight- month high the next day.

The central bank said in a statement after its January meeting that it’s committed to buying about $85 billion of government and mortgage securities a month to support growth in the world’s biggest economy. It bought securities today maturing from February 2036 to February 2043.

“We already know there’s been a lot of talk by the hawkish folks,” George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 21 primary dealers that trade with the Fed. “If anything, the risk is the doves might have calmed down some of the hawks over the course of the last six weeks.”

While the inflation hawks may want to reduce purchases to keep the Fed from overextending its balance sheet, Chairman Ben S. Bernanke and Vice Chairman Janet Yellen believe “it’s too early to make that call, and there’s a chance they’ve gotten that across at this meeting, and that’s something that might be in the minutes,” Goncalves said.

Temporary Package

President Barack Obama urged Congress today to find a way to avert $1.2 trillion of automatic spending cuts scheduled to start taking effect March 1, saying that if it doesn’t, the U.S. risks losing hundreds of thousands of jobs.

Lawmakers “at minimum” should pass a temporary, smaller package that provides more time for negotiations, Obama said in Washington. Officials agreed to the spending cuts, to be spread over nine years, as part of a 2011 deficit-reduction deal to raise the debt limit. The reductions were supposed to be so onerous that Congress and the president would never let them occur and would find a plan to replace them.

Volatility in Treasuries dropped Feb. 14 to the lowest level since Jan. 24 and stayed there the next day. Bank of America Merrill Lynch’s MOVE index, which measures price swings of U.S. government securities based on options, was 59.1 basis points after rising to 66.4 basis points on Jan. 30, the most since Nov. 6.

Government Forecasts

While Treasury yields are rising, the increase may not be enough to justify government forecasts for economic growth.

The Office of Management and Budget predicts yields on 10- year notes will average 4.1 percent in 2015 and 4.9 percent in 2017 as the economy expands at about a 4 percent rate in the second half of President Obama’s term. Bond prices suggest the yield will average below 3 percent two years from now, implying that gross domestic product will fall short of OMB projections, according to data compiled by Bloomberg.

Treasury borrowing costs just above last year’s record lows mean easy credit for consumers and companies as well as sustained demand for riskier assets such as stocks. The record- low 10-year rate was 1.38 percent set in July.

The U.S. sold $72 billion in coupon-bearing debt last week, including $32 billion in three-year notes, $24 billion in 10- year notes and $16 billion in 30-year bonds.

The Treasury will auction $9 billion of 30-year inflation- indexed debt on Feb. 21.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@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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