Treasuries halted a three-day decline as two Federal Reserve officials said they support pressing on with $85 billion of monthly bond-buying to bolster the economy.
U.S. debt rose as Fed Governor Jerome Powell said the central bank will probably sustain stimulative policy for some time while Fed Bank of Boston President Eric Rosengren said more needs to be done until the labor market gains strength. The U.S. Treasury Department said it will borrow about 13 percent more this quarter than it projected three months ago in order to boost the nation’s cash balance on Dec. 31.
“We are clearly in still in a downward trending yield market, as investors have been totally dominated by Federal Reserve concerns,” said Dan Greenhaus, chief global strategist in New York at broker-dealer BTIG LLC. “We have settled at these levels as the hurdles for lower yields from here get higher. The market will remain very data dependent until we get more clarification from the Fed.”
The U.S. 10-year note yield fell two basis points, or 0.02 percentage point, to 2.60 percent at 5:09 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.5 percent note due August 2023 rose 5/32, or $1.56 per $1,000 face amount, to 99 1/8. The yield climbed to 2.63 percent on Nov. 1, the highest level since Oct. 17.
Issuance of net marketable debt will be $266 billion in the October-to-December period, compared with $235 billion initially forecast on July 29, the department said today in Washington. At the end of December, the Treasury will have $140 billion in cash, versus $80 billion projected before.
“The Treasury is being cautious as a large cash balance gives them more flexibility, given the political risks with the debt ceiling that are not too far away,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, one of the 21 primary dealers that are required to bid at Treasury debt auctions. “They would rather have too much and not need it then to have the opposite situation.”
On Nov. 6, the U.S. will announce the amount it will sell in three-, 10-and 30-year debt on three consecutive days starting Nov. 12.
The Treasury is planning to sell the first floating-rate notes at the end of January to expand its investor base and limit borrowing costs, according to a July 31 statement. The sales would be the first added U.S. government debt security since Treasury Inflation-Protected Securities were introduced in 1997.
The Fed bought $3.7 billion of Treasuries maturing from August 2019 to June 2020 today.
“Monetary policy in the United States is likely to remain highly accommodative for some time,” Powell said today in a speech in San Francisco. “The timing of this moderation in the pace of purchases is necessarily uncertain, as it depends on the evolution of the economy.”
The 10-year yield climbed 11 basis points last week, the most since the period ended Sept. 6, as Fed Bank of St. Louis President James Bullard said the improvement in the labor market could warrant a cut in the central bank’s stimulus program. Fed Bank of Dallas President Richard Fisher said the central bank should resume normal monetary policy as soon as possible.
“I am not a proponent of ever-increasing government spending,” Fisher said in the partial text of a speech in Sydney. “I mention this simply to illustrate a point: Unlike in most recoveries, government has played a countercyclical, suppressive role. The inability of our government to get its act together has countered the pro-cyclical policy of the Federal Reserve.”
A Bloomberg survey of analysts taken from Oct. 17-18 forecast the Fed will taper bond purchases in March, later than previous surveys indicated, after the government’s 16-day partial closure dented economic-growth estimates. The central bank unexpectedly refrained from reducing stimulus in September.
“Prices are fairly neutral here as everyone will be focusing on payrolls at the end of the week to get some clarity,” said Sean Murphy, a trader at Societe Generale SA in New York, a primary dealer.
A report Nov. 8 is forecast to show the U.S. added 120,000 jobs in October, compared with 148,000 the previous month.
U.S. factory orders rose by 1.7 percent in September after falling 0.1 percent the previous month. The forecast was for an increase of 1.8 percent, according to a Bloomberg survey of economists.
Deutsche Bank AG was one of the few companies surveyed by Bloomberg in January to correctly predict the worst rout in the U.S. Treasury market since 2009. Now, Germany’s largest lender says it’s time to buy.
“The economy isn’t growing as strongly as we’d hoped,” Dominic Konstam, the New York-based global head of interest-rate research at Deutsche Bank, said in a telephone interview on Oct. 28, one day before a measure of U.S. consumer confidence plunged by the most in more than two years.
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