Treasury 10-Year Yield at Almost One-Week Low on Fed Speculation

Treasury 10-year note yields traded at almost the lowest level in almost a week as Federal Reserve officials debated the pace of asset purchases amid mixed economic data.

The benchmark notes were little changed before a report that economists project will show U.S. consumer confidence rose. Reports yesterday had shown housing starts fell and initial claims for jobless insurance climbed. Fed Bank of San Francisco President John Williams said yesterday the central bank may begin to slow bond purchases as early as this summer. The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities reached the lowest level since August, indicating reduced concern about rising prices.

“There’s this ongoing debate about Fed exit strategy and how it’s going to be handled,” said Dan Mulholland, head of U.S. Treasury trading in the capital-markets unit of BNY Mellon Corp. in New York. “We need to see further employment growth. There are a lot of other things that need to happen” for tapering to occur.

U.S. 10-year yields rose one basis point, or 0.01 percentage point, to 1.89 percent as of 8:57 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.75 percent note due in May 2023 fell 2/32, or 63 cents per $1,000 face amount, to 98 3/4. The yield touched 1.86 percent yesterday, the lowest level since May 10.

Inflation Outlook

The difference between yields on 10-year notes and similar-maturity TIPS reached 2.23 percentage points, the least since Aug. 9 according to Bloomberg data. The consumer price index decreased 0.4 percent, the biggest decrease since December 2008, after falling 0.2 percent in March, according to Labor Department figures released yesterday.

The Treasury announced yesterday it will sell $13 billion in 10-year TIPS on May 23. It sold an equal amount of the securities on March 21 at a yield of negative 0.602 percent.

TIPS handed investors a loss of 1.9 percent in May through yesterday, already making this month the worst since the December 2009, according to Bank of America Merrill Lynch indexes. Treasuries overall have declined 0.7 percent.

Ten-year note yields rose to 1.98 percent on May 15, the highest since March 15, as U.S. officials weighed whether the economy is strong enough for them to curtail their monthly purchases of $85 billion of government and mortgage debt. The average for the year to date is 1.87 percent.

Data Read

“The data are a bit weak at the moment so although there is a lot of talk about tapering, it is premature,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands. “Treasuries will move more or less sideways in the next few months.”

The Thomson Reuters/University of Michigan index of consumer sentiment advanced to 77.9 in May from 76.4 in April, a separate survey shows. The index of U.S. leading indicators, a gauge of the outlook for the next three to six months, rose 0.2 percent in April after declining 0.1 percent a month earlier, according to the median estimate of economists in a survey before today’s report.

The Fed said after a policy meeting on May 1 it will keep buying bonds as long as the outlook for inflation doesn’t exceed 2.5 percent and as unemployment remains above 6.5 percent.

Fed Governor Sarah Bloom Raskin said yesterday income inequality and government cutbacks may slow economic growth for years. Three regional central-bank presidents called for phasing out the purchases of mortgage-backed securities as the housing market strengthens.

The central bank plans to purchase as much as $5.75 billion of securities maturing between February 2018 and February 2019 today, according to the New York Fed’s website. The Fed will release minutes of the April 30 to May 1 policy makers meeting on May 22.

Treasuries have dropped 1.1 percent this month as of yesterday, according to Bank of America Merrill Lynch indexes. The debt has lost 0.3 percent this year after gaining 2.2 percent in 2012.

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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