Treasury yields declined from the highest levels since 2011 amid speculation a selloff after Federal Reserve Chairman Ben S. Bernanke said the Fed may slow bond purchases this year was excessive.
U.S. government securities fluctuated as stocks rose. Benchmark 10-year (USGG10YR) yields had their biggest one-day jump this week since October 2011 after Bernanke said June 19 the central bank may end $85 billion in monthly bond purchases under quantitative easing in mid-2014.
“We’ve had a pretty decent selloff, and it’s probably time to put money in the bond market,” said Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York. “Although a taper is not generally good for the market, the economy is still struggling at 1.5 to 2 percent range in growth and inflation is extremely low.”
The 10-year yield fell as much as four basis points, or 0.04 percentage point, to 2.38 percent before rising one basis point to 2.43 percent at 9:51 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2023 declined 1/8, or $1.25 per $1,000 face amount, to 94 2/32. The yield surged 17 basis points on June 19 and reached 2.47 percent yesterday, the highest level since Aug. 8, 2011. It has added 30 basis points this week, the most since July 2011.
The 30-year yield fell one basis point to 3.5 percent after dropping as much as five basis points earlier. It rose 17 basis points during the prior two days and reached 3.55 percent, the highest since September 2011.
The Standard & Poor’s 500 Index rose for the first time in three days, gaining 0.5 percent.
Bernanke, speaking this week after a two-day meeting of the Federal Open Market Committee, said reducing bond purchases would depend on the economy achieving the central bank’s objectives. Policy makers are forecasting growth of as much as 2.6 percent this year and 3.5 percent in 2014.
“There is an element of the Treasury market being oversold,” said Soeren Moerch, head of fixed-income trading at Danske Bank A/S in Copenhagen. “Bernanke’s comments turned out to be more hawkish than many had anticipated, but he reiterated it’s all data-dependent. The market seems to be taking a pause to monitor the next round of economic numbers to see if there is a strong ground for the Fed to turn off its liquidity tap.”
The Fed has been buying $45 billion of U.S. government debt and $40 billion of mortgage securities each month to put downward pressure on borrowing costs in its third round of asset purchases. It will buy as much as $1.75 billion today of Treasuries due from February 2036 to May 2043, according to the Fed Bank of New York’s website.
The central bank has kept its target rate for overnight lending between banks at zero to 0.25 percent since December 2008 to support the economy.
The Fed will cut its $85 billion in monthly bond purchases by $20 billion at its Sept. 17-18 policy meeting, according to 44 percent of 54 economists surveyed by Bloomberg after Bernanke’s June 19 press conference. In a June 4-5 survey, only 27 percent forecast tapering would start in September.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index climbed to 96.02 yesterday, the most recent available data. It was the highest level since December 2011. The daily average this year is 60.8.
Trading volume has been rising, with the amount changing hands through ICAP Plc, the largest inter-dealer broker of U.S. government debt, averaging $403 billion a day since the start of May. That’s up from an average of $281 billion in the first four months of the year. Volume climbed to $569 billion yesterday, the highest since May 31.
Economic reports next week on U.S. home prices and durable goods may add to the case for the Fed to curb stimulus.
Orders for durable goods rose 3 percent in May, expanding for a second month, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department on June 25. A separate report the same day will show the S&P/Case-Shiller (SPCS20Y%) index of property values jumped 10.6 percent in April from a year earlier, the surveys show.
The Treasury will auction $35 billion in two-year notes on June 25, an equal amount of five-year debt the following day and $29 billion in seven-year securities on June 27.
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