Treasury 10-year notes fell for the fourth time in five days as the U.S. services sector grew faster than forecast last month, underpinning speculation the Federal Reserve may move up the timing of asset-purchase cuts.
The benchmark yield reached the highest level in more than two weeks as the nonmanufacturing report and data last week showed a gauge of U.S. factories expanded more than projected, even after the 16-day partial government shutdown last month. Investors in Treasuries were betting on declines for the second straight week, according to a survey by JPMorgan Chase & Co. The U.S. will announce tomorrow the amounts it will sell in notes and bonds next week.
“Today’s data was generally stronger than anticipated and is suggesting that the economy may have withstood the shutdown better than anticipated,” said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York.’’ Investors are taking pause and are waiting for the picture to become clearer.’’
Benchmark 10-year yields rose seven basis points, or 0.07 percentage point, to 2.67 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. The 2.5 percent note due in August 2023 fell 18/32, or $5.63 per $1,000 face amount, to 98 17/32.
The 10-year yield has risen 17 basis points in the past five days and reached the highest level since Oct. 16. Thirty-year yields added eight basis points to 3.77 percent.
“You are not seeing the outside-money investor coming in,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. People “are waiting for signals from the Fed and we’re not getting them. There’s no definitive line. They may change the goalpost because they don’t want to affect the economic progress even though it’s anemic.”
The seven-day relative strength index for the Treasury 10-year note yield was at 76.3, according to Bloomberg data. A reading lower than 30 or above 70 suggests the security may be poised for a change in direction.
Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, was $164.7 billion yesterday. The only time it was lower this year was Aug. 9, when it fell to $147.8 billion. The high was $662.3 billion on May 22.
The JPMorgan Chase survey showed the proportion of net shorts remained at four percentage points in the week ending yesterday, according to JPMorgan. The percent of outright shorts, or bets the securities will fall in value, was unchanged at 23 percent as of yesterday, the survey said. The percent of outright longs held at 19 percent, the survey reported.
Investors held neutral bets at 58 percent, equaling the lowest level since June 3, the survey reported.
Fed Governor Jerome Powell said yesterday the central bank will probably sustain its stimulative policy for some time, and it is uncertain when any tapering of $85 billion in monthly bond purchases will begin. Boston Fed President Eric Rosengren said more needs to be done until the labor market gains strength.
The central bank’s next meetings are Dec. 17-18, Jan. 28-29 and March 18-19.
The U.S. will announce tomorrow the amount it will sell in three-, 10-and 30-year debt on three consecutive days starting Nov. 12. The U.S. Treasury Department said yesterday it will borrow about 13 percent more this quarter than it projected three months ago to boost the nation’s cash balance on Dec. 31.
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 in Washington. At the end of December, the Treasury will have $140 billion in cash, versus $80 billion projected before.
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 Institute for Supply Management’s U.S. nonmanufacturing index increased to 55.4 in October, exceeding forecasts for 54 reading and up from 54.4 the prior month, a report from the Tempe, Arizona-based group showed today. A report Nov. 1 showed Institute for Supply Management’s factory index rose to 56.4 in October, the highest since April 2011, from 56.2 a month earlier.
“It suggests there’s a rebound in service-sector employment,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 21 primary dealers that trade with the Fed. “Both the manufacturing and service sectors are resilient. The back-end is definitely underperforming,” he said, referring to longer-maturity debt.
The U.S. added 120,000 jobs in October, versus 148,000 in September and 193,000 in August, based on responses from economists in a Bloomberg News survey before the Labor Department reports the figure Nov. 8.
The 10-year yield is forecast to end the year at 2.80 percent, according to the median of a Bloomberg survey of analysts.
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