Treasuries rose, pushing 10-year note yields down the most in two weeks, as a report showing the economy expanded less than forecast in the first quarter sustained the refuge appeal of the world’s safest assets.
The benchmark yields fell toward the lowest level in more than four months as another report showed consumer confidence fell in April, a sign the economic slowdown extends into the second quarter. Treasury volatility as measured by options rose from a record low reached yesterday. The Federal Reserve meets next week amid speculation it may taper its $85 billion monthly asset purchase program.
“You need to see the economy really starting to do well before you really start getting comfortable,” said Douglas Swanson, co-manager of a $29 billion fund at JPMorgan Chase & Co.’s J.P. Morgan Asset Management. As for the Fed, “even though there’s been a lot of talk about tapering, you still feel that’s not going to happen too early. With the economic numbers that have come out more recently, that’s a lot less likely to happen this year.”
Ten-year yields declined five basis points, or 0.05 percentage point, to 1.66 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data, the biggest drop on a closing basis since April 12. The yield reached 1.64 percent on April 23, the lowest since Dec. 12. The price of the 2 percent note due February 2023 rose 13/32, or $4.06 per $1,000 face amount, to 103 1/32.
Yields on the 30-year bond fell four basis points to 2.86 percent.
Hedge-fund managers and other large speculators reversed from a net-short position to a net-long position in 30-year bond futures in the week ending April 23, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 1,337 contracts on the Chicago Board of Trade, the most in 2013. Last week, traders were net- short 8,968 contracts.
In 10-year note futures, speculative long positions outnumbered short positions by 120,640 contracts, according to CFTC data. Net-long positions fell by 14,732 contracts, or 11 percent, from a week earlier, according to the data.
The Fed purchased $3.38 billion of debt maturing between August 2020 and February 2023 today to support the economy by putting downward pressure on borrowing costs, a policy known as quantitative easing.
The current 10-year note accounted for 46 percent of today’s Fed purchase in the seven- to 10-year sector, with its purchase of $1.551 billion of the securities, according to Fed data.
In the previous 14 operations in the sector since the central bank’s third round of quantitative easing began Jan. 3, the Fed has purchased the current 10-year note in six, taking $1 million to $3 million, according to Fed data.
Policy makers including Chairman Ben S. Bernanke have said they will maintain their $85 billion of monthly Treasury and mortgage debt buying until the labor market improves “significantly.” They meet for a two-day session ending May 1.
“Bernanke has been pretty consistent and he’s being more aggressive than the market anticipates,” said Swanson, who manages the JPMorgan Core Bond Fund. (WOBDX)
Gross domestic product rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, Commerce Department figures showed today in Washington. The median estimate of 86 economists surveyed by Bloomberg called for a 3 percent gain.
“Investors aren’t convinced there’s any reason to meaningfully sell off Treasuries at the moment,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “Growth remains less than desirable.”
The Thomson Reuters/University of Michigan final April index of consumer sentiment declined to 76.4 from 78.6 in March. Economists projected 73.5 for the gauge after a preliminary April reading of 72.3, according to another survey.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index rose to 50.24 basis points, up from a record low of 49.39 basis points reached yesterday, the fourth in as many days as the Fed supports the market with asset buying. The data, which measures price swings, stretches back to 1988.
Demand picked up this week as the U.S. auctioned $99 billion in notes, including $29 billion in seven-year notes yesterday that attracted the highest demand this year. The notes were sold at a yield of 1.155 percent, compared with a forecast of 1.163 percent in a Bloomberg News survey of nine of the Fed’s primary dealers.
Even with the recent pickup, bidding at Treasury auctions this year has slowed versus 2012, with the $721 billion in debt sales attracting an average of $3.01 in orders to buy per dollar of debt sold, compared with a record $3.15 the previous year, data released by the Treasury and compiled by Bloomberg show.
The sales this week raise $59.05 billion of new cash, as maturing securities held by the public total $57.95 billion, according to the U.S. Treasury.
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