Treasuries rose for a second day, the first back-to-back gain in almost two weeks, after yields near the highest level in two years helped attract demand at a 10-year note sale yesterday.
The U.S. is scheduled to sell $16 billion of 30-year bonds today. Demand for Treasuries was supported before data economists said will show claims for jobless benefits increased, adding to signs of weakness in the U.S. economic recovery that may delay Federal Reserve policy makers’ plans to reduce stimulus. U.S. employers hired fewer workers in July than economists forecast, according to Labor Department data published last week.
“There’s momentum from the good takedown of the auction and also technical support,” said Michael Leister, a senior fixed-income strategist at Commerzbank AG in London. “If you take a medium-term view, yields are rather at the upper end of the range, and at the same time after the payrolls the early September tapering speculation has cooled down somewhat. This combination is a key driver for demand.”
The yield on the benchmark 10-year note sold yesterday fell two basis points, or 0.02 percentage point, to 2.60 percent at 6:21 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.5 percent security due August 2023 rose 1/8, or $1.25 per $1,000 face amount, to 99 1/8.
The $24 billion auction yesterday drew a yield of 2.62 percent, down from 2.67 percent at the previous offering last month, which was the most since July 2011. The 10-year auction yield was lower than the rate of 2.635 percent projected by a Bloomberg News survey of eight of the Fed’s 21 primary dealers, companies obligated to submit bids at the debt sales.
The 30-year bonds being sold today yielded 3.65 percent in pre-auction trading, compared with 3.66 percent at a previous auction of similar-maturity debt on July 11. That was the highest in almost two years. Investors bid for 2.26 times the amount of debt offered last month, the least since August 2011.
Mizuho Asset Management Co. and Fukoku Mutual Life Insurance Co. are both optimistic on Treasuries.
A reduction in the Fed’s $85 billion in monthly debt purchases, known as quantitative easing, will end up supporting U.S. government securities, according to Mizuho Asset Management, which is part of Japan’s third-biggest bank as measured by market value.
“The liquidity provided by the Fed mainly went to high-risk assets,” said Yusuke Ito, who helps oversee the equivalent of $33.1 billion for the company in Tokyo. “I want QE tapering to start soon because liquidity will go to safer assets like Treasuries.”
Fed Chairman Ben S. Bernanke said on June 19 that the U.S. central bank may start to reduce bond purchases this year and end them entirely in 2014 if economic growth is in line with central-bank projections.
Claims for jobless benefits rose from the lowest level in more than five years last week, according to a Bloomberg News survey before today’s Labor Department report. Applications for unemployment insurance payments increased to 335,000 from 326,000 in the previous week, economists predict.
The increase in yields is making Treasuries more appealing, Yoshiyuki Suzuki, head of fixed income at Fukoku Mutual in Tokyo, said yesterday. The insurer has the equivalent of $58.5 billion in assets. The 10-year yield has climbed from a record-low 1.379 percent in July 2012.
Indirect bidders, the investor class that includes foreign central banks, purchased 46.3 percent of the 10-year notes sold yesterday, up from 38.6 percent on July 10. At an auction of three-year debt on Aug. 6, indirect bidders bought 41.4 percent, the most since August 2011.