Treasury Yields At Six-Week High as Gross Says Bull Over

Photographer: Daniel Acker/Bloomberg

Traders work in the two-year and five-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago. Close

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Photographer: Daniel Acker/Bloomberg

Traders work in the two-year and five-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago.

Treasuries fell, with 10-year note yields climbing to the highest level in six weeks, as signs the U.S. economy is improving amid central-bank monetary stimulus sapped demand for U.S. debt.

Benchmark yields were set for their biggest weekly increase in two months as the dollar continued to rally versus the yen after passing the 100 level yesterday. The Fed and other central banks are pumping cash into their economies or cutting interest rates, prompting money managers to seek higher-yielding assets. Pacific Investment Management Co.’s Bill Gross wrote in a message on Twitter that the 30-year bull market for bonds “likely ended” on April 29. Treasury trading volume rose to the highest level since February.

“We are seeing the ramifications of the yen move that had the effect of exacerbating the already short-dollar position on the street,” Richard Gilhooly, an interest-rate strategist at Toronto-Dominion Bank’s TD Securities unit in New York. “The move is causing trouble for a bond market that is getting longer as the duration is increasing during the selloff.” A long position is a bet that an asset will increase in value.

The U.S. 10-year yield climbed nine basis points, or 0.09 percentage point, to 1.9 percent at 4:59 p.m. in New York, after touching 1.93 percent, the highest since March 26, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2023 fell 25/32, or $7.81 per $1,000 face amount, to 98 21/32.

Weekly Gain

The yield has climbed 16 basis points this week, the most since the period ended March 8. It traded above its 50-, 100-and 200-day moving averages for the first time since March 25.

The yield on the 30-year bond rose nine basis points to 3.09 percent after touching 3.13 percent, the highest level since April 1.

Trading volume increased 36 percent to $450 billion, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. It was the highest level since Feb. 1. The average daily volume for this year is $281 billion.

Hedge-fund managers and other large speculators decreased their net-long position in 10-year note futures in the week ending May 7, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions or bets prices will rise, outnumbered short positions by 37,956 contracts on the Chicago Board of Trade. Net-long positions fell by 94,088 contracts, or 71 percent, from a week earlier, resulting in the biggest reduction in net longs since March.

Market Levels

Treasuries due in a decade or more are close to the cheapest levels in a month relative to global peers with comparable maturities, according to Bank of America Merrill Lynch indexes. Yields on Treasuries were 49 basis points higher than those in an index of other sovereign debt yesterday, just below the 52 basis points reached on May 6, the cheapest level since April 4. As recently as March 25, the gap was at 57 basis points, the cheapest level since August 2011.

“Treasuries remain cheaper because of the risk-on sentiment,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “All the rate cuts are supposed to suppress volatility. The move is so tied to central bank policy that it is supposed to be low.”

Government bonds in Japan, Germany and the U.K. slumped and the yen weakened beyond 100 per dollar for the first time in four years. The yen depreciated as much as 1.4 percent to 101.98 per dollar, the weakest since October 2008.

Japan’s Investors

Domestic investors in Japan became buyers of bonds outside the nation after the longest period of sales in three years.

Money managers boosted their holdings of overseas bonds and notes by 514.3 billion yen ($5.1 billion) in the two weeks ended May 3, the Ministry of Finance said today. They had cut them in the six weeks through April 19, the longest run since January 2010.

The central bank purchased $1.4 billion of Treasuries maturing between February 2036 and February 2043 today, according to the Fed Bank of New York’s website.

Fed purchases have suppressed volatility. Bank of America Merrill Lynch’s MOVE index measuring price swings in Treasuries rose to 55.32 basis points, after falling yesterday to an all-time low of 48.87 basis points. The measure averaged 62.6 basis points during the past 12 months.

The U.S. central bank is buying Treasuries and mortgage debt each month to support the economy by capping borrowing costs. The Bank of Japan is purchasing more than 7 trillion yen of debt each month in expanded easing measures announced April 4.

Economic Data

The number of Americans filing claims for jobless benefits unexpectedly dropped last week and the average over the past month fell to the lowest level since before the last recession, the Labor Department said yesterday.

Even as the economy recovers, bond market measures from overnight index swaps projects the federal funds rate, won’t climb past 50 basis points until January 2016. The fed funds effective rate was at 0.13 percent today. The Fed has kept the overnight interbank lending rate at zero to 0.25 percent since December 2008.

Treasuries slid 0.5 percent this month through yesterday, Bank of America Merrill Lynch data show.

To contact the reporters on this story: Susanne Walker in New York at swalker33@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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