Treasury 10-year note yields dropped from the highest level in a week after a report showed harsh weather pushed sales of previously owned U.S. homes in January to the lowest level in more than a year.
Treasuries erased weekly losses fueled by minutes of the Federal Reserve’s last meeting that showed the central bank will continue to cut bond purchases, given policy makers’ confidence in the economic recovery. Snow and ice storms had also depressed data on retail sales and employment. The Bloomberg U.S. Treasury Bond Index (BUSY) has dropped 0.3 percent this month.
“The market is trying to figure out where we are -- the question still remains was this a weather-induced slowdown or something more,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “We’ve priced in a pretty good slowdown. The market will probably need more bad data to go to lower yields.”
U.S. 10-year yields fell two basis points, or 0.02 percentage point, to 2.73 percent as of 5 p.m. in New York, Bloomberg Bond Trader data show. The yield had increased to 2.78 percent, the highest since Feb. 13. The 2.75 percent security due in February 2024 rose 5/32, or $1.56 per $1,000 face amount, to 100 5/32.
Home purchases decreased 5.1 percent to a 4.62 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg projected sales would drop to a 4.67 million rate.
Treasuries returned 1.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds gained 1.8 percent while Japanese securities rose 1 percent.
“The market could quite easily recalibrate itself to a better fundamental picture once we see data no longer distorted by unusual weather conditions,” said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York. The minutes showed “some policy makers may envision interest rate hikes sooner than the market expects. That encouraged some selling.”
The decline in Treasuries this month is a shift from January, when the Bloomberg index surged 1.8 percent, the most since May 2012, as a rout in emerging-market currencies spurred demand for the haven of government debt.
A custom Bloomberg gauge tracking 20 developing-nation currencies has risen 1.1 percent in February, stabilizing after tumbling 3 percent in January.
Investors will be bidding on $109 billion of notes next week: $32 billion in two-year debt on Feb. 25; $13 billion in two-year floating-rate notes and $35 billion in five-year securities on Feb. 26; and $29 billion in seven-year debt the next day.
The sale of $9 billion in 30-year Treasury Inflation Protected Securities yesterday drew bids 2.34 times the amount of securities on offer, the weakest since October 2001 amid stagnant inflation and as the Fed reduces its bond buying.
The benchmark 10-year yield will rise to 3.05 percent by the end of the second quarter, according to the median forecast of financial institutions surveyed by Bloomberg.
Policy makers have kept their target for federal funds, or overnight loans between banks, in a range of zero to 0.25 percent for five years to support the U.S. economy. The odds of an increase to 0.5 percent or more by January are about 11 percent, based on futures contracts.
Minutes of the Fed’s most recent meeting released Feb. 19 signaled policy makers will probably continue to reduce the bond-buying program they use to help support the economy. “A few” officials said “it might be appropriate to increase the federal funds rate relatively soon,” according to the minutes.
The Fed is buying $65 billion of Treasury and mortgage debt a month after cutting the amount by $10 billion in January and again in February.
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