Treasuries rose for the first time in three days as comments from Federal Reserve officials added to speculation Chairman Ben S. Bernanke will emphasize the need to sustain stimulus when he speaks before Congress tomorrow.
Treasury 10-year note yields dropped from two-month highs after Fed Bank of St. Louis President James Bullard said the central bank should continue its bond buying because it’s the best available option for policy makers to boost growth. Fed Bank of New York President William C. Dudley said he hasn’t decided whether the Fed’s next move should be to enlarge or to shrink its bond-buying. The Fed publishes minutes tomorrow of its April 30 to May 1 policy meeting.
“I don’t see any real change in the QE intentions tomorrow,” said Thomas di Galoma, senior vice president of fixed-income rates trading at ED&F Man Capital Markets in New York. “There’s no reason for bonds to sell off dramatically.”
U.S. 10-year yields fell four basis points, or 0.04 percentage point, to 1.93 percent as of 4:59 p.m. New York time, according to Bloomberg Bond Trader prices. The price of the 1.75 percent note due in May 2023 added 11/32, or $3.44 per $1,000 face amount, to 98 13/32. The yield touched 1.99 percent earlier today, the highest level since March 15.
The yield on the 30-year bond dropped five basis points to 3.13 percent.
Trading volume rose to $371.4 billion, the highest level since May 16, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. The average daily volume for 2013 is $285.6 billion.
Bullard, who votes on the policy-setting Federal Open Market Committee this year, said the panel should continue buying while “adjusting the rate of purchases appropriately in view of incoming data” said in Frankfurt. Dudley called for a fresh look at the Fed’s eventual retreat from record asset purchases.
“Because the outlook is uncertain, I cannot be sure which way -- up or down -- the next change will be,” Dudley said a speech today in New York.
Fed Bank of Chicago President Charles Evans said yesterday in a speech in Chicago the economy has improved “quite a lot” and he would be amenable to the central bank slowing its asset purchases if he had confidence job growth would be maintained.
The Fed is purchasing $85 billion of government and mortgage debt each month to cap borrowing costs and help the economy. The U.S. central bank bought $3.3 billion of securities maturing between August 2020 and February 2023 today, according to the New York Fed’s website.
Bernanke will testify before the Joint Economic Committee tomorrow and may provide clues as to whether he sees the Fed making enough progress toward its goal of substantial improvement in the labor market to warrant reducing stimulus.
“People are wondering whether and if the chairman will move as some of the other Fed governors who are looking at tapering or ending QE,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “He’s been opposing that. The market is buying insurance on the potential that he could be more hawkish.”
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities was at 2.27 percentage points today, at almost the 2.23 percentage points reached May 17, the least since Aug. 9, according to Bloomberg data. The consumer price index decreased 0.4 percent, the biggest decline since December 2008, after falling 0.2 percent in March, according to Labor Department figures released last week.
The Treasury 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.
Treasuries due in a decade or more are still cheaper relative to global peers with comparable maturities, according to Bank of America Merrill Lynch indexes. Yields on Treasuries was 48 basis points higher than those in an index of other sovereign debt yesterday. As recently as March 25, the gap was at 57 basis points, the cheapest level since August 2011.
Investors in Treasuries remained short for the fifth straight week, betting that the prices of the securities will drop, according to a survey by JPMorgan Chase & Co.
The proportion of net shorts was at 16 percentage points in the week ending yesterday, according to JPMorgan. The figure is down from 17 percentage points in the previous week.
The percent of outright longs remained at 13 percent, while outright shorts, or bets the securities will fall in value, slipped to 29 percent from 30 percent, the survey reported.
Investors raised neutral bets to 58 percent from 57 percent, the survey reported.
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