Treasuries Fall Before Sale as Outlook Strengthens

Treasury bonds fell, pushing yields to almost the highest levels in 11 months before a $13 billion auction of the securities, as signs of a strengthening U.S. economy reduce demand for the longest-maturity U.S. debt.

Thirty-year bonds have lost 5.13 percent this year, according to a Bank of America Merrill Lynch index. A report today showed unemployment claims unexpectedly fell last week to the lowest level in almost two months. The bonds being sold today yielded 3.24 percent in trading before the auction, the highest since the March 2012 sale.

“We’ve been seeing some good data since last week,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 21 primary dealers obligated to bid in U.S. debt auctions. “We’ve seen a drop in claims. Combine that with supply, and Treasuries are pressured.”

Thirty-year yields increased two basis points, or 0.02 percentage point, to 3.24 percent at 12:21 p.m. New York time, according to Bloomberg Bond Trader data. They touched 3.26 percent today, after reaching 3.28 percent on March 8, the highest level since April 5. The price of the 3.125 percent security due in February 2043 declined 10/32, or $3.13 per $1,000 face amount, to 97 29/32.

Ten-year yields rose two basis points to 2.05 percent. They reached 2.08 percent on March 8, the highest since April.

Treasury Losses

The benchmark 10-year notes have lost 1.9 percent this year, and five-year securities have slipped 0.5 percent, according to Bank of America Merrill Lynch indexes.

First-time U.S. jobless claims fell by 10,000 to 332,000 in the week ended March 9, the fewest since mid-January, according to data from the Labor Department in Washington. The median forecast in a Bloomberg survey was for an increase to 350,000.

“Any time you get a downward drift in claims, you’ll get Treasuries selling off,” said Steven Ricchiuto, chief economist in New York at the primary dealer Mizuho Securities USA Inc. “It’s pushed us back to the upper end of the yield range.”

Ten-year note yields reached the highest level in 11 months on March 8 after the Labor Department reported that U.S. payrolls increased by 236,000 jobs last month, more than forecast. Commerce Department figures yesterday showed U.S. retail sales jumped 1.1 percent in February from January, the biggest gain in five months.

Bond Auction

Thirty-year bonds yielded 3.18 percent at the last auction, on Feb. 14. Investors submitted bids for 2.74 times the amount of securities for sale, compared with an average of 2.62 at the past 10 sales.

While investors typically avoid longer-maturity debt during periods of economic growth because of the rise of inflation, consumer-price increases have been slow. The cost of living in the U.S. rose 0.5 percent in February from a month earlier, economists in a Bloomberg survey forecast before the Labor Department reports the data tomorrow.

Yesterday’s U.S. 10-year auction drew a yield of 2.029 percent, compared with a forecast of 2.057 percent in a Bloomberg survey of eight primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.19, versus 2.68 at the February sale.

The Treasury announced it will sell $13 billion in 10-year inflation-indexed debt on March 21.

Fed Purchase

The U.S. central bank purchased $3.34 billion today of Treasuries maturing from May 2020 to February 2023. It is buying $85 billion of Treasury and mortgage debt a month to spur the economy by putting downward pressure on borrowing costs.

“The Fed buying every day is putting a cap on rates to some degree,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “Given the economic numbers, you would expect a higher move in rates, but that has yet to be seen.”

Treasury securities due in a decade and more traded at almost the cheapest level since 2011 relative to global peers with comparable maturities, according to the Bank of America indexes. Yields on Treasuries were 54 basis points higher on March 8 than those in an index of other sovereign debt, the most since August 2011, the data showed. The spread was 53 basis points yesterday.

Benchmark 10-year yields will climb to 2.32 percent at year-end, according to a Bloomberg survey of forecasters.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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

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