Treasuries rose, rebounding from yesterday’s biggest decline in a week, after industry reports showed manufacturing output in China and the euro area both slowed this month.
Investors sought the relative safety of U.S. government securities as renewed clashes between police and protesters in Ukraine’s capital Kiev sparked declines in developing-market currencies. The U.S. is scheduled to auction $9 billion of 30-year Treasury Inflation Protected Securities today and release a report on consumer prices for January.
“It’s largely Ukraine driven and China weaker as well, which has contributed to the bid in Treasuries,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “Overall, our euro-zone economists said the PMIs were disappointing. That combination is obviously supporting Treasuries as well.”
The benchmark 10-year yield dropped two basis points, or 0.02 percentage point, to 2.72 percent at 7:05 a.m. New York time, according to Bloomberg Bond Trader prices. The 2.75 percent note maturing in February 2024 rose 5/32, or $1.56 per $1,000 face amount, to 100 1/4.
A truce declared yesterday by Ukrainian President Viktor Yanukovych and opposition leaders foundered as new clashes left dozens wounded and police retreated from barricades in central Kiev. Violent skirmishes erupted after 8 a.m. local time as European foreign ministers prepared to meet Yanukovych before talks in Brussels to consider sanctions.
An index of 20 developing-nation currencies compiled by Bloomberg declined for a third day, slipping 0.3 percent. The gauge has tumbled 2.2 percent this year. The Stoxx Europe 600 Index of shares fell 0.6 percent and Standard & Poor’s 500 Index futures contracts expiring in March dropped 0.1 percent.
A Chinese purchasing managers index from HSBC Holdings Plc and Markit Economics dropped to 48.3 this month from 49.5 in January. A similar gauge of euro-region output slipped to 53 from 54 in January. Readings below 50 signal contraction.
Treasuries declined yesterday, with 10-year yields rising three basis points, as minutes from the Federal Reserve’s January meeting showed there’s not much chance they will scale back plans to reduce bond purchases.
A report today will show consumer prices increased 1.6 percent in January from the year before, versus 1.5 percent in December, based on a Bloomberg News survey. It would be the sixth month of sub-2 percent growth. Producer prices climbed 1.2 percent, the government reported yesterday.
Today’s $9 billion auction of 30-year TIPS is an increase from $7 billion the previous time the government sold these securities in October. Investors bid for 2.76 times the amount offered at the sale, versus 2.48 times in June.
U.S. inflation-linked debt due in 15 years and more has returned 3.8 percent in the past six months, compared with 5.5 percent for conventional Treasuries of the same maturity, according to Bank of America Merrill Lynch indexes.
The difference between yields on 30-year bonds and similar-maturity TIPS, a gauge of the outlook for consumer prices over the life of the debt, was little changed today at 2.27 percentage points. The average for the past decade is 2.47 percentage points.
A temporary soft patch in the economy during the winter has created a buying opportunity in TIPS, according to Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “The economy is picking up and, therefore, there will be some sort of need for inflation protection,” he said.
One-month implied volatility in U.S. government securities as measured by the Bank of America Merrill Lynch MOVE Index rose for the first time in nine days yesterday. The gauge climbed to 57.28 basis points after sliding to 55.99 on Feb. 18, the lowest level since May 16.