The benchmark yield reached an almost one-month low as consumer prices in the 12 months through January rose less than the Fed’s 2 percent long-term objective, while an index of economic indicators signaled growth. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said he expects the central bank will buy $85 billion a month of government and mortgage securities until January 2014. Revised data may show economic expansion during the fourth quarter, rather than a decline, when the Commerce Department updates its gross domestic product estimate on Feb. 28.
“While the economy continues to chug along and do reasonably well, there’s not really any pressure on inflation,” said Tom Kersting, a fixed-income strategist at Edward Jones & Co. in St. Louis. “That pushes out further when the Fed begins to change current policies.”
The U.S. 10-year yield fell four basis points this week, or 0.04 percentage point, to 1.96 percent, according to Bloomberg Bond Trader data. The price of the 2 percent note due in February 2023 rose 11/32 or $3.44 per $1,000 face value, to 100 11/32.
The benchmark yield reached 1.96 percent on Feb. 21 and yesterday, close to the 1.92 percent low for the month on Feb. 1. The yield has straddled 2 percent for the past five weeks, as the Bank of America Merrill Lynch MOVE index, which measures volatility, declined to 57.9 on Feb. 20, the lowest in a month.
Hedge-fund managers and other large speculators reduced net-short position in 30-year bond futures in the week ending Feb. 19, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 17,695 contracts on the Chicago Board of Trade, down 5,984 contracts, or 25 percent, from a week earlier.
Traders increased their net-long position in 10-year note futures. Speculative long positions, or bets prices will rise, exceeded short positions by 53,288 contracts.
The Treasury is scheduled to sell $35 billion of two-year notes on Feb. 25, the same amount of five-year securities the next day and $29 billion of seven-year securities on Feb. 27.
Several policy makers said at the Fed’s last meeting that officials should be ready to vary the pace of its $85 billion in monthly bond purchases. The central bank holds a record $2.75 trillion of Treasuries and mortgage securities, up from $2.5 trillion in September before policy makers announced the central bank would buy $40 billion a month of securities backed by home loans, which was followed by a December pledge to buy $45 billion a month of government debt.
“Two percent, in my mind, is the middle of the range for the year,” said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “The Fed is still in the game, regardless of what rhetoric comes out.”
Fed Chairman Ben S. Bernanke minimized the view that the central bank’s monetary stimulus has spawned economically risky asset bubbles in comments at a meeting with dealers and investors this month, according to three people with knowledge of the discussions. The people, who asked not to be identified because the talks were private, said Bernanke made the remarks at a meeting in early February with the Treasury Borrowing Advisory Committee.
The Fed chief is scheduled to testify before lawmakers on Feb. 26-27 about monetary policy.
The Conference Board said Feb. 21 that its gauge of the outlook for the next three to six months increased 0.2 percent from a 0.5 percent rise in December, the New York-based group said. The gain matched the increase projected by economists, according to the median estimate in a Bloomberg survey.
The cost of living in the U.S. was little changed in January for a second month as a drop in energy costs made up for gains in other goods and services. The CPI was unchanged in January and up 1.6 percent from a year earlier, the Labor Department reported.
The U.S. sold $9 billion of 30-year inflation-protected securities on Feb. 21 at a yield of 0.639 percent, compared with an average forecast of 0.625 percent in a Bloomberg News survey of seven of the Fed’s 21 primary dealers.
The inflation rate for the next 10-years implied by the gap between yields on 10-year Treasury Inflation-Protected Securities and regular government debt with comparable maturities was 2.54 percentage points yesterday, close to the 2.53 percentage point average this year.
The Commerce Department will revise its GDP estimate for the fourth quarter to 0.5 percent growth from a 0.1 percent contraction, according to a Bloomberg survey of 66 economists.
The GDP estimate may be revised higher than the consensus forecast, which would “budge Treasuries” higher in yield, said Eric Lascelles, chief economist for Royal Bank of Canada’s RBC Asset Management unit in Toronto. “This move higher in yield is probably durable.”
Treasuries have handed investors a 0.8 percent loss this year, after a 2.2 percent gain last year, according to Bank of America Merrill Lynch indexes. The Standard & Poor’s 500 Index of stocks has returned 6.5 percent, including reinvested dividends, versus a 16 percent gain for 2012.
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