Treasuries Gain Amid Weaker-Than-Forecast Data

Treasuries rose for a third day as reports showed retail sales increased less than forecast and consumer confidence slid more than projected, suggesting the economic expansion is struggling to gain momentum.

The combination added to speculation that the Federal Reserve may be less aggressive than some investors anticipated in slowing its bond-buying program when policy makers meet Sept. 17-18. Yields climbed last week to the highest since July 2011 before a report showed employment gains in August trailed forecasts. Rates on six-month bills declined to the lowest level since October 2011.

“We got pretty weak U.S. data across the board so there’s been pretty good buying,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “People are trying to be a bit nimble in front of the Fed. There’s a lot of cash on the sidelines.”

The 10-year yield fell three basis points, or 0.03 percentage point, to 2.89 percent at 4:59 p.m. New York time. The price of the 2.5 percent note due in August 2023 rose 7/32, or $2.19 per $1,000 face amount, to 96 22/32. The yield increased earlier as much as five basis points. It declined to 2.86 percent yesterday, the lowest level since Sept. 4, after reaching a two-year high of 3.01 percent on Sept. 6. The yield decreased five basis points on the week.

Rates (USGG6M) on six-month bills declined to 0.01 percent, the lowest level since Oct. 18, 2011 before closing at 0.015 percent. It reached a 2013 high of 0.14 percent on Feb. 22.

“They are parking money in bills,” Rogan of Guggenheim said. People are waiting to “see what happens with the Fed and the tapering talk.”

Futures Reversal

Hedge-fund managers and other large speculators reversed bets on 30-year bond futures in the week ending Sept. 10, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 17,063 contracts on the Chicago Board of Trade. The prior week, traders were net-short 8,963 contracts. A short position is a bet that the price of a security will fall.

U.S. government bonds have lost investors 0.5 percent since the end of August, set for a fifth monthly decline, the longest since a seven-month slump ended March 2011, according to the Bloomberg U.S. Treasury Bond Index. (BUSY) The securities have lost investors 3.8 percent in 2013, according to data as of yesterday.

Confidence Sags

Retail sales rose in August 0.2 percent, the least in four months, following a revised 0.4 percent July gain that was bigger than previously estimated, the Commerce Department reported. The median forecast of economists surveyed by Bloomberg called for a 0.5 percent advance.

The Thomson Reuters/University of Michigan preliminary September index of consumer sentiment fell to 76.8 from 82.1 last month, which was the lowest since April. A Bloomberg survey estimated a reading of 82.

A Labor Department report on Sept. 6 showed the U.S. added 169,000 workers in August, falling short of the 180,000-job median forecast in a Bloomberg survey.

The Federal Open Market Committee will decide at its Sept. 17-18 meeting to reduce monthly purchases of Treasuries to $35 billion from $45 billion, according to the median of 34 responses in a Bloomberg survey of economists. Policy makers will maintain mortgage-bond buying at $40 billion under the Fed’s quantitative-easing program, the survey shows.

“It will be a soft launch,” said Tom Porcelli, chief U.S. economist at Royal Bank of Canada’s RBC Capital Markets, one of the 21 primary dealers that trade with the central bank. “The Fed will taper next week -- about $10 billion split evenly.”

Won’t ’Disappoint’

The Fed bought $3.7 billion today of Treasuries maturing from June 2019 to June 2020 as part of its stimulus effort.

“The marketplace has come to just about expect the Fed to take some modest action and they’re not going to at this point disappoint the market,” said Guy Haselmann, an interest-rate strategist in New York at primary dealer Bank of Nova Scotia. (BNS)

The U.S. central bank has kept the federal-funds target rate at a record-low range of zero to 0.25 percent since December 2008. The Fed will release its 2016 economic projections next week for the first time, including the outlook for the benchmark rate.

In their June assessment, 19 FOMC members were divided on the appropriate benchmark rate in 2015, with four participants saying 1 percent. Three projected 3 percent, the other three forecast 1.5 percent and another three saw 0.75 percent.

The median forecast of analysts’ predictions compiled by Bloomberg News from Sept. 6 to Sept. 11, is for the 10-year yield to end the year at 2.85 percent and to rise to 3.1 percent by the end of June 2014.

Higher Demand

Demand for U.S. government debt increased this week at the auctions of $65 billion of U.S. notes and bonds. The $13 billion of 30-year debt sold yesterday attracted bids valued at 2.4 times the amount offered, versus 2.11 last month. The bid-to-cover ratio rose to 2.86 at the $21 billion offering of 10-year notes on Sept. 11, from 2.45 last month, while the three-year note sale on Sept. 10 had the ratio rise to 3.29 from 3.21.

The auctions experienced higher demand even as the broader Treasury market struggles and as Verizon Communications Inc. sold a record $49 billion in debt. The U.S. will sell $13 billion in 10-year inflation-linked debt Sept. 19.

Chairman Speculation

Treasuries fell earlier as the Nikkei said former U.S. Treasury Secretary Lawrence Summers will be the next Fed chairman. A White House spokesman said later President Barack Obama has made no decision on who will succeed Ben S. Bernanke, whose term as chairman ends in January.

Thirty-five percent of investors, analysts and traders who are Bloomberg subscribers say Summers may provide less stimulus than Bernanke, compared with 13 percent who see Summers with looser policy and 22 percent saying it’d be the same. Forty-seven percent see current Vice Chairman Janet Yellen presiding over the same policy if she succeeds Bernanke, with 17 percent saying it’d be looser and 8 percent saying tighter. The survey was conducted on Sept. 10.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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