Treasury 10-Year Yield at Almost 2013 Low as U.S. Spending Slows

Treasury 10-year-note yields rose from almost the lowest this year as U.S. personal spending slowed last month, signaling reduced economic growth and underpinning demand for the securities.

The benchmark 10-year Treasuries were little changed as a report showed household purchases rose 0.2 percent in March, compared with a 0.7 percent increase the previous month. The yield dropped on April 26, by the most in two weeks, as a report showed the U.S. economy expanded less than economists predicted. The Federal Open Market Committee will release a statement after a two-day meeting in Washington ending May 1. Treasury announced it will pay down the federal debt this quarter for the first time since 2007.

“The slow-growth theme is well entrenched in the psyche of investors,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “By extension, it means the Fed will remain fully engaged past the third quarter and yields will stay low. The market is waiting to see what will come from the Fed’s statement on Wednesday.”

The benchmark 10-year notes yield increased one basis point, or 0.01 percentage point, to 1.67 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The yield fell to as low as 1.64 percent on April 23, the least since Dec. 12. The 2 percent note due February 2023 declined 2/32 or 63 cents to 102 31/32.

The yield on the 30-year bond rose two basis points to 2.88 percent.

Less Debt

The Treasury projected it will pay down debt this quarter as tax receipts exceed forecasts and spending diminishes. The pay-down in net marketable debt was estimated at $35 billion in the April-June period, compared with a projection three months ago for net borrowing of $103 billion, the department said in a statement today in Washington.

“Our projections remain that coupon auction sizes should be unchanged,” said Shyam Rajan, an interest-rate strategist at Bank of America Merrill Lynch in New York, one of the 21 primary dealers obligated to bid at U.S. government debt auctions.

Treasury officials projected net borrowing of $223 billion in the quarter starting July 1. The estimates set the stage for the department’s quarterly refunding announcement on May 1. Congress has suspended the nation’s $16.4 trillion debt limit through May 18. Lawmakers will be debating proposals to raise the ceiling in the coming months to ward off the possibility of a U.S. default.

Treasury will announce the size of three securities sales on May 1. Bond dealers including Bank of America Corp. (BAC), Morgan Stanley, Jefferies LLC, and HSBC Holdings Plc forecast that the Treasury will maintain the size of its offerings in May at $32 billion for three-year notes, $24 billion for 10-year debt and $16 billion for 30-year bonds.

Supply Track

“The Treasury will try to keep consistent supply; This is a bit of a blip in terms of the longer-term numbers,” said Larry Dyer, a U.S. interest-rate strategist with HSBC in New York, a primary dealer.

The federal budget deficit is on a pace to shrink to $775 billion for the 2013 fiscal year ending Sept. 30 from $1.09 trillion for 2012.

Later this year, Treasury may reduce the size of the auctions, Morgan Stanley economist Ted Wieseman said in April 25 report. The three-year note offerings, which have been $32 billion since October 2010, could be reduced as soon as June, while the size of 10-year note and 30-year bond auctions could be reduced as soon as September, Wieseman wrote.

Price Data

Inflation measured by the personal consumption expenditures index, a gauge preferred by the Fed, rose 1.1 percent in March from a year earlier, compared with 1.3 percent the previous month, according to data from the Commerce Department in Washington. The figure is less than the central bank’s goal of 2 percent and the slowest growth in inflation since March 2011.

The 10-year break-even rate, a measure of inflation expectations derived from the difference between yields on conventional U.S. debt and Treasury Inflation Protected Securities, was at 2.36 percentage points. It touched a 2013 low of 2.25 percentage points on April 18 and a high of 2.6 percentage points on Feb. 4.

“Inflation-related data remains benign,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “The longer end of this yield curve looks relatively attractive.”

The Fed bought $1.52 billion of Treasuries today, maturing between February 2036 and August 2042.

Economic Data

Fed policy makers including Chairman Ben S. Bernanke have said they’ll maintain their $85 billion of monthly Treasury and mortgage debt buying until the labor market improves “significantly.” Minutes of their March meeting showed they discussed slowing the pace of purchases this year.

A report this week is forecast to show payrolls rose by 150,000, above the 88,000 gain in March, according to the median forecast of economists surveyed by Bloomberg News before the Labor Department reports the figure on May 3.

Gross domestic product rose at a 2.5 percent annual rate in the first quarter, following 0.4 percent in the previous three- month period, Commerce Department figures showed on April 26. The median estimate of economists surveyed by Bloomberg was for a 3 percent gain.

Bonds Rally

Amid global austerity efforts to cut borrowing, the bond market is clamoring for more debt, pushing yields on almost $20 trillion of government securities to less than 1 percent.

The average yield to maturity for the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index fell to a record-low 1.34 percent last week from 3.28 percent five years ago.

Even though the amount of bonds in the index has more than doubled to $23 trillion -- bigger than the gross domestic product of the U.S. and China combined -- the three-decade rally in bonds shows no sign of abating as gold, the world’s traditional store of value, sinks into a bear market and inflation slows.

Barclays Plc estimates that central banks will buy $2.5 trillion of assets considered to be safe this year as they inject cash into the global economy in an effort to stimulate growth. That’s up from $1.15 trillion of purchases in 2012 and outstrips net supply of $2 trillion, according to the London- based bank.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

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

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