Treasury 10-year note yields fell to the lowest level in two weeks on speculation the Federal Reserve will maintain its bond-buying program into next year after the government shutdown weighed on economic growth.
U.S. debt advanced the most in a month as consumer confidence dropped to a two-year low and a regional factory measure fell in October. Treasury bill rates dropped for a second day after lawmakers agreed on a plan to end the federal closure that started Oct. 1 and to raise the borrowing limit. Federal Reserve Bank of Chicago President Charles Evans said the central bank should postpone tapering after the shutdown stopped the flow of economic data used to gauge growth.
“The market is turning back to looking at the Fed,” said Donald Ellenberger, who oversees about $10 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh. “The uncertainty in the market and the economy may keep the Fed on hold longer than anticipated, which is supportive of Treasury prices.”
The benchmark 10-year yield fell seven basis points, or 0.07 percentage point, to 2.60 percent at 1:36 p.m. New York time, according to Bloomberg Bond Trader prices. The 2.5 percent note due in August 2023 rose 18/32, or $5.63 per $1,000 face amount, to 99 5/32. The yield touched 2.59 percent, lowest since Oct. 3, and dropped as much as seven basis points, the biggest decline since Sept. 18.
Treasuries have lost investors 2.5 percent this year, according to Bloomberg US Treasury Bond Index. (BUSY) The Bloomberg Global Developed Sovereign Bond Index (BGSV) has lost investors 3.71 percent in 2013.
The overnight Treasury general collateral repo rate closed at 0.19 percent, down from a close of 0.35 percent yesterday, according to ICAP Plc, the world’s largest inter-dealer broker.
The seven-day relative strength index for the Treasury 10-year note yield was at 34 today, down from 47 yesterday and 67 on Oct. 15, according to Bloomberg data. A reading lower than 30 or above 70 suggests the security may be poised for a change in direction.
While the yield has advanced from a record low of 1.379 percent in July 2012, it’s below the average of about 6.40 percent since September 1981, the start of the three-decade bull market in bonds.
President Barack Obama just after midnight signed into law a measure to extend the nation’s borrowing authority into early 2014 and end the shutdown.
The deal, which avoided a default of the world’s biggest economy and means that federal workers return to their jobs today, funds the government at Republican-backed spending levels through Jan. 15, 2014, and suspends the debt limit through Feb. 7.
“There’s one theme out there -- it’s overwhelmingly negative for the economy and positive for the Fed not tapering, which people are equating to higher Treasury prices,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.
In September, most Fed policy makers said the central bank will probably reduce bond purchases -- used to support the economy by putting downward pressure on borrowing costs -- this year from the current rate of $85 billion a month.
The Fed’s Evans, an advocate of pressing on with stimulus, said today in a speech prepared for delivery in Madison, Wisconsin, “only the data can tell us how much progress we’ve made, and they aren’t saying much right now.” Fed Bank of Kansas City President Esther George and Fed Bank of Minneapolis President Narayana Kocherlakota are also due to speak today.
Treasuries remained higher as the monthly Bloomberg Consumer Confidence Index expectations gauge plunged to minus 31, the lowest level since November 2011, from minus 9 in September, a report showed today. The share of people projecting the economy will worsen jumped by the most since the collapse of Lehman Brothers Holdings Inc. five years ago.
The Federal Reserve Bank of Philadelphia’s general economic index fell to 19.8 this month from 22.3 in September. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 56 economists surveyed by Bloomberg called for a reading of 15.
Rates on $120 billion of bills maturing today, when U.S. borrowing authority was scheduled to lapse, dropped to 0.038 percent yesterday. They were as high as 0.51 percent Oct. 10.
The next securities due are $93 billion of debt maturing on Oct. 24. Rates on those bills touched 0.68 percent yesterday before dropping to 0.01 percent today. The rate was negative as recently as Sept. 27.
“There were buying opportunities in the bills market,” said Paul Montaquila, fixed-income investment officer with BNP Paribas SA’s Bank of the West. “It was a crazy ride. The bills market has returned to normalcy. The dust has settled.”
One-month rates were 12 basis points lower at 0.02 percent after touching 0.45 percent yesterday, the highest level since October 2008, according to data compiled by Bloomberg. The rate on bills due on Feb. 13 dropped four basis points to 0.05 percent, compared with an average of 0.035 percent since the securities were issued in August.
Even at the height of concern about a default, yields remained lower than historical levels, with one-month rates averaging 1.5 percent in the past 10 years. During that time they climbed to a high of 5.26 percent in November 2006 and fell to as low as negative 0.09 percent in December 2008.
The U.S. announced today it will sell $7 billion in 30-year Treasury Inflation Protected Securities on Oct. 24. The Treasury previously sold an equal amount of the securities on June 20.
The Fed today purchased $3.15 billion in Treasuries maturing between August 2021 and August 2023 as part of its program to lower borrowing costs.
The shutdown has shaved at least 0.6 percent from annualized fourth-quarter growth, Standard & Poor’s said yesterday. The ratings agency downgraded the U.S. on Aug. 5, 2011, by one step to AA+ from AAA. Fitch Ratings put the U.S. on watch for a possible downgrade on Oct. 15.
China’s Dagong Global Credit Rating, one of the country’s four biggest credit-rating companies, downgraded the local- and foreign-currency credit ratings of the U.S. to A- from A today, maintaining a negative outlook, it said in an e-mailed statement today.
China is the largest foreign holder of U.S. Treasuries and increased its holdings to $1.28 trillion as of July, according to U.S. government figures.
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