Benchmark notes were set for a fourth weekly gain, the longest stretch since April. U.S. securities rose yesterday after a gauge of Chinese manufacturing showed contraction, Argentina’s peso plunged the most since 2002 and Turkey’s lira fell to a record. The Federal Reserve meets next week, while the Treasury will offer floating-rate two-year securities in an inaugural sale. Short-term bill rates rose, with four-week rates reaching the most since Nov. 29.
“The market was caught off guard by the fear out of emerging markets and the selloff in equities, which has brought a nice bid into the market,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities LLC, a New York-based brokerage for institutional investors.
The U.S. 10-year yield fell six basis points, or 0.06 percentage point, to 2.72 percent as of 5:07 p.m. New York time, after sliding to 2.70 percent, the lowest since Nov. 26, according to Bloomberg Bond Trader prices. The price of the 2.75 percent note due November 2023 rose 17/32, or $5.31 per $1,000 face amount, to 100 9/32.
Treasuries headed for the biggest monthly advance since May 2012, even after the Federal Open Market Committee voted in December to trim monthly asset purchases by $10 billion. U.S. debt has returned 1.2 percent as of yesterday after falling 1.1 percent the previous month, according to the Bloomberg U.S. Treasury Bond Index. (BUSY)
Hedge-fund managers and other large speculators increased their net-short position in 10-year note futures in the week ending Jan. 21, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 58,391 contracts, up 15 percent from a week earlier.
The yield curve, or extra yield on 30-year bonds versus five-year notes, was 2.09 percentage points, almost the least since September, after averaging 2.28 percentage points during the past year. The gap rose to a two-year high of 2.54 percentage points in November. Historically, a flatter yield curve reflects anticipation of reduced economic growth.
Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.
“We are back to a flight-to-quality atmosphere, given the worries from emerging markets and China,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney. “A lot of investors have been expecting higher yields this year and the move has caught them by surprise.”
There is ’’significant hedging/de-risking taking place worldwide as money comes out of emerging & back to developed,’’ Bill Gross, the co-founder of Pacific Investment Management Co. said via Twitter.
Speaking at a World Economic Forum Session yesterday, Treasury Secretary Jacob J. Lew reiterated a call for Congress to raise the federal debt ceiling as soon as possible and assume that the extraordinary measures used to stay under the limit will run out in late February.
One-month bill rates rose to 0.07 percent, the highest on a closing basis since Nov. 29. Three-month bill rates increased to 0.07 percent, the highest level since Jan. 7.
“There have been some concerns about the hard debt ceiling timeline that is causing kinks in the bill curve, and that combined with the move in emerging markets, and the possibility that those central banks may have to sell their Treasuries to support their currency is inducing some selling in bills,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 21 primary dealers that trade with the Fed.
President Barack Obama signed legislation last year to suspend the limit until Feb. 7 and end a 16-day partial government shutdown.
Treasury 10-year yields will rise to 2.89 percent by March 31, according to the weighted-average forecast of economists polled by Bloomberg. That compares with a projection of 3.02 percent on Jan. 6, the highest since Bloomberg started tracking the data in October 2012.
The Commerce Department will say on Jan. 27 sales of new homes fell in December for a second-straight month, while a report the next day will show growth in durable goods orders slowed, economists forecast in separate Bloomberg surveys.
The Fed decided at its December meeting to reduce monthly bond purchases to $75 billion from $85 billion, starting in January. It will cut purchases in $10 billion increments over the next six gatherings before announcing an end to the program no later than December, according to the median forecasts of economists in a Bloomberg News survey Jan. 10.
There’s a 20 percent chance the federal funds rate, the central bank’s target for overnight loans between banks, will rise by January 2015, down from 22 percent a month ago, according to data compiled by Bloomberg based on futures contracts. The majority of investors predict that the benchmark rate will remain between zero and 0.25 percent for the next year.
The U.S. announced a $15 billion sale of floating-rate two-year notes for Jan. 29.
The Treasury’s floating-rate note program is its first added security in 17 years. This kind of debt offers investors a short-term instrument that’s a hedge against a potential rise in interest rates. The securities are considered short term because they are benchmarked to a short-term index -- the high rate from a 13-week bill. The rate at which interest will accrue on the notes will be re-set daily.
The U.S. will auction five- and seven-year notes on Jan. 30, the first time it will conduct two fixed-coupon debt sales in a single day since October 2008. At that time, it sold $60 billion in debt to relieve shortages in Treasuries that were leading to unprecedented failures to deliver or receive U.S. government securities in trades in the market for repurchase agreements, or repos.
The Treasury will also sell $32 billion in two-year fixed-rate notes on Jan. 28.
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