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Treasuries Hold Two-Day Drop Before Fed Meets on Taper, Guidance

Treasury 10-year notes held two days of declines before the Federal Reserve begins a meeting at which analysts forecast policy makers will decide to further scale back purchases of government bonds.

Benchmark yields rose yesterday by the most in a week with the Federal Open Market Committee forecast tomorrow to cut monthly purchases under quantitative easing to $55 billion while providing guidance on the outlook for interest rates. Data today are predicted to show housing starts in the U.S. increased, ending a two-month slump that came amid harsh winter weather. Treasuries slumped yesterday even after the U.S. and Europe hit Russia with sanctions over Crimea’s vote to leave Ukraine.

“The current view of the market is that there are no obvious risks on the horizon and that the FOMC is the biggest piece of data out over the course of this week,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “For Treasuries, it would appear that, for the moment, you want to fade the rally given the immediate risks of repercussions over Crimea have been mollified.”

Benchmark 10-year yields were little changed at 2.68 percent as of 6:46 a.m. in London after rising four basis points, or 0.04 percentage point, yesterday, Bloomberg Bond Trader data showed. The price of the 2.75 percent note due February 2024 was 100 19/32.

Yields on the notes touched 2.61 percent on March 14, the lowest since March 4.

Trading Volume

The MSCI Asia Pacific Index of regional shares rose 0.5 percent, ending two days of declines.

Treasury trading volume dropped 39 percent to $275 billion yesterday, the lowest level since Feb. 24, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. It was at $582.4 billion on March 13, the highest in more than nine months, according to ICAP.

Fed Chair Janet Yellen will lead her first meeting of the policy-setting FOMC today since she succeeded Ben S. Bernanke last month. The committee will say tomorrow that it will link policy to a range of economic indicators, according to 76 percent of 54 economists in a March 14-17 Bloomberg News survey. Twenty percent of the economists polled said the Fed will maintain the threshold it adopted in December 2012, while 6 percent said it will drop such guidance entirely.

In January, the Fed left unchanged its statement that it will probably hold its target rate near zero “well past the time” that unemployment falls below 6.5 percent. The rate has remained steady at zero to 0.25 percent since December 2008.

Housing Starts

Builders began work on 910,000 homes at an annualized rate in February, up 3.4 percent from the previous month, economists forecast in a Bloomberg poll before the Commerce Department data today. Housing starts slid 16 percent in January.

A separate report will show the consumer price index rose 0.1 percent in February from the previous month, when it also gained 0.1 percent, according to the median estimate in a Bloomberg survey. From a year earlier, the gauge climbed 1.2 percent slowing from 1.6 percent.

The Fed plans to purchase $1 billion to $1.25 billion of debt maturing from February 2036 to February 2044 today, according to the Fed Bank of New York’s website.

President Barack Obama yesterday imposed sanctions on seven top Russian government officials and added four others from Ukraine, including the former president, who the U.S. says threaten peace and security. The actions, which mark the broadest use of sanctions on Russia since the end of the Cold War, were made in concert with the 28-member European Union, which imposed its own set of penalties.

About 97 percent of the voters in the southern Ukraine region who took part backed joining Russia, preliminary results showed. The Ukrainian government, the EU and the U.S. consider the vote illegal, while Russia said it “fully met international norms.”

Japan’s benchmark 10-year bond yield was unchanged at 0.62 percent. Australia’s rose four basis points to 4.08 percent.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Jonathan Annells, Naoto Hosoda

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