Treasuries fell, with five-year notes halting a three-day advance, before the U.S. sells $35 billion of the securities as investors awaited a decision from the U.S. and its allies about military action against Syria.
Benchmark 10-year yields climbed from the lowest level in almost two weeks before a government report tomorrow forecast to show the economy grew more last quarter than previously estimated, backing the case for the Federal Reserve to slow monetary stimulus. Treasuries have gained this week as speculation that the U.S. and its allies will take military action in reaction to a suspected chemical attack by Syria.
“Without any type of action in the Middle East, it gives the market a little bit of breath from a flight-to-quality bid,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities LLC, a New York-based brokerage for institutional investors. “There’s a little bit of a selloff in front of supply.”
The U.S. five-year yield rose five basis points, or 0.05 percentage point, to 1.57 percent at 11:58 a.m. in New York after dropping 16 basis points during the previous three days, according to Bloomberg Bond Trader prices. The 1.375 percent note maturing in July 2018 fell 1/4, or $2.50 per $1,000 face value, to 99 2/32.
The 10-year yield climbed five basis points to 2.76 percent after falling to 2.70 percent, the lowest since Aug. 15.
Treasuries have lost 3.1 percent this year, including 0.5 percent in the past month through yesterday, according to the Bloomberg World Bond Indexes. (BUSY)
The five-year notes being sold today yielded 1.61 percent in pre-auction trading, compared with 1.41 percent at the previous sale on July 24. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.46 last month, compared with an average of 2.8 for the previous 10 sales.
“We needed a little bit of a concession to get the five-year into a decent area,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “The auctions will go fine with the pullback.”
The Treasury will auction $29 billion of seven-year debt tomorrow after selling $34 billion of two-year notes yesterday.
The two-year auction drew a yield of 0.386 percent, compared with a forecast of 0.39 percent in a Bloomberg News survey of seven of the Fed’s 21 primary dealers. The bid-to-cover ratio rose to 3.21, the highest since April.
Treasuries rose yesterday amid speculation the U.S., France and Britain are moving closer to military action against Syria after the nation’s government allegedly used chemical weapons. A United Nations team is on the ground to gather evidence to establish use of chemical warfare, Secretary-General Ban Ki Moon said today. Syrian President Bashar al-Assad’s government has denied the use of chemical weapons.
The U.K. is drafting a United Nations resolution to condemn last week’s suspected chemical attack. U.K. Prime Minister David Cameron said today the UN resolution would authorize action to protect civilians in Syria.
Treasury 10-year note yields dropped 11 basis points in the two days ending yesterday on Syria’s crisis. U.S. 10-year securities yielded 27 basis points more than bonds in an index of Group of Seven debt, down from 42 basis points more on Aug. 21, the most since May 2010, according to data compiled by Bloomberg based on closing prices.
The U.S. central bank today purchased $3.3 billion of notes maturing from August 2021 to August 2023, according to the New York Fed’s website. Debate about when policy makers will taper $85 billion in monthly bond buying has roiled financial markets around the world in the past three months and sparked a selloff in fixed-income assets.
Gross domestic product grew at a 2.2 percent annualized rate in the second quarter, compared with an initial estimate of 1.7 percent released July 31, according a Bloomberg survey before tomorrow’s Commerce Department report.
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