Treasuries fell for the first time in three days and stocks gained after a rise in consumer spending boosted speculation that economic growth would be fast enough to allow the Federal Reserve to keep reducing stimulus.
U.S. government debt posted the first monthly loss this year as Federal Reserve Bank of Chicago President Charles Evans said the central bank will probably raise interest rates in the second half of next year. Policy makers have trimmed bond purchases at each of the past three meetings. Bill Gross, manager of the world’s biggest bond fund, said core inflation of “only” 1.1 percent was overlooked by the market. The gap between five- and 30-year yields shrank to the least since 2009.
“Stocks are one of the reasons why we’re seeing this unloading of bonds,” said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York. “It’s been a pretty harsh winter the last three months, and I think people perceive the data next month to be fairly decent.”
The benchmark 10-year yield rose four basis points, or 0.04 percentage point, to 2.72 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. It gained seven basis points this month. The price of the 2.75 percent note due in February 2024 fell 11/32, or $3.44 per $1,000 face value, to 100 1/4.
The Standard & Poor’s 500 stock index rose as much as 1 percent, the most since March 17.
The five-year note yield rose three basis points to 1.75 percent, and the 30-year bond added two basis points to 3.55 percent. The difference between yields on Treasuries maturing in that span has narrowed 0.10 percentage point this week to 1.80 percentage points. It was 2.16 percentage points Feb. 21.
The yield spread has “gone a long way in a short amount of time, but it can go a heck of a lot further,” said Guy Haselmann, an interest-rate strategist in New York at Bank of Nova Scotia, one of 22 primary dealers that trade with the Fed.
Hedge-fund managers and other large speculators increased their net-short position in five-year note futures in the week ending March 25 to the most since January 2009, according to U.S. Commodity Futures Trading Commission data.
Speculative short positions, or bets prices will fall, outnumbered long positions by 172,119 contracts on the Chicago Board of Trade. Net-short positions rose by 82,399 contracts, or 92 percent, from a week earlier, the Washington-based commission said in its Commitments of Traders report.
Speculative long positions on 30-year bonds, or bets prices will rise, outnumbered short positions by 10,550 contracts on the Chicago Board of Trade, the fewest since the period ended Dec. 20. Net-long positions fell by 18,397 contracts, or 64 percent, from a week earlier, the CFTC said.
Treasuries handed investors a loss of 0.1 percent in March, based on the Bloomberg U.S. Treasury Bond Index (BUSY), set for their first monthly decline since December. U.S. debt is up 1.9 percent on the year, the most since the quarter ending June 2012.
The Bloomberg Global Developed Sovereign Bond Index (BGSV) is little changed this month. It has risen 3 percent this year, the best quarterly performance in almost three years.
Household purchases, which account for about 70 percent of the U.S. economy, climbed climbed 0.3 percent -- the most in three months -- after a 0.2 percent gain in January that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 79 economists in a Bloomberg survey called for a 0.3 percent gain. Incomes also increased 0.3 percent.
The Thomson Reuters/University of Michigan final index of sentiment fell in March to 80 from 81.6 a month earlier. The median projection in a Bloomberg survey of 63 economists called for 80.5 after a preliminary March reading of 79.9. Estimates ranged from 79.5 to 83.
The core price measure, which excludes fuel and food, rose 0.1 percent in February from the prior month and was up 1.1 percent from a year ago, the same as in January.
“Most important number of the month,” Gross, co-founder of Pacific Investment Management Co., said on Twitter. “Market doesn’t notice. PIMCO does. Dovish.”
Short-to-medium-maturity Treasuries tumbled last week after Fed Chair Janet Yellen said the central bank may end bond-buying this fall and lift borrowing costs six months later.
Fed board members cut the monthly bond purchases to $55 billion this month, from $85 billion in 2013. The central banks’s benchmark interest-rate target has been zero to 0.25 percent since 2008.
“I do tend to think inflation’s going to pick up and that will be the reason why we ultimately raise rates,” Evans, who doesn’t vote on policy this year, said today in a Bloomberg Television interview with Betty Liu in Hong Kong. “It’s most likely to be in the second half of 2015. If I had my druthers, I’d wait a little bit longer than that.”
Evans told reporters afterward that he would wait until early 2016 to raise interest rates and that he expects a federal funds rate of 1.25 percent at the end of that year.
“Tapering is going to continue,” said Justin Lederer, an interest-rate strategist at primary dealer Cantor Fitzgerald LP in New York. “If you see some better data, you’re going to see some pressure on the short end and intermediate sector.”
Primary dealers had a net position of negative $5.2 billion in coupon-bearing Treasuries in the week ended March 19, according to a report yesterday by Ward McCarthy and Thomas Simons at Jefferies LLC in New York. It was the first net short position since September 2011, according to the report. Jefferies is one of the 22 primary dealers, companies that underwrite the U.S. debt.
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