Treasuries fell, pushing 10-year note yields up the most in a month, as talks on the crisis in Ukraine ended with an accord aimed at de-escalating the conflict, damping haven demand.
Thirty-year bond yields rose from a nine-month low as reports showed initial jobless claims were lower than forecast last week and a manufacturing index expanded, adding to speculation the Federal Reserve will raise interest rates at some point next year. The U.S. sale of $18 billion of five-year Treasury Inflation Protected Securities attracted the most demand since December 2012, while the divergence from nominal five-year securities pushed break-even rates to the most since March 19. The U.S. will sell $96 billion in notes next week.
“People were long looking for a squeeze into the weekend as no one was looking for any positive news out of the Ukraine,” Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc., said in an email. “The headlines are very encouraging and the market now has people trapped above going into supply next week.” A long is a bet the price of a security will rise.
Benchmark 10-year yields added nine basis points, or 0.09 percentage point, to 2.72 percent at 1:59 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.75 percent note due in February 2024 lost 26/32, or $8.13 per $1,000 face amount, to 100 1/4. The yield the most since March 19 and touched 2.72 percent, the highest level since April 7.
U.S. five-year yields increased nine basis points to 1.73 percent. The yield on the 30-year bond climbed eight basis points to 3.52 percent after falling to 3.43 percent on April 15, the lowest level since July 3.
Trading of U.S. government securities closed at 2 p.m. in New York and will stay shut tomorrow for Good Friday, according to the Securities Industry & Financial Markets Association. On April 21, trading will stop at 3 p.m. in Japan and remain closed during London hours for the U.K.’s Easter Monday. The market will open as usual in the U.S. on April 21.
Treasury trading volume was $300 billion. Little changed from yesterday, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. It reached $582.4 billion on March 13, the highest in more than nine months, according to ICAP.
The Treasury’s sale of five-year TIPS drew a yield of negative 0.213 percent, compared with a projection of negative 0.162 percent, according to the average forecast in a Bloomberg News survey of five of the Fed’s primary dealers. The sale had a bid-to-cover ratio, a gauge of demand that compares the amount bid with the amount offered, of 2.70, compared with the average 2.62 at the past 10 sales.
The difference in yields on five-year notes and inflation-protected debt, known as the break-even rate, rose as much as eight basis points to reach 1.95 percentage points.
Treasuries due in 10 years and longer have gained 2 percent this month and 9.4 percent this year, according to Bloomberg U.S. Treasury Bond Index data. The broader Treasury market has advanced 0.6 percent this month and 2.3 percent this year, according to index data.
After investors pulled $10.3 billion in March out of government bond Exchange Traded Funds, the biggest exodus since December 2010, investors have returned to U.S. debt funds, with inflows off $403 million in April, data compiled by Bloomberg show.
The Treasury is scheduled to sell $32 billion in two-year notes, $35 billion in five-year debt and $29 billion in seven-year securities on three consecutive days starting April 22.
Talks in Geneva between Russian Foreign Minister Sergei Lavrov, his Ukrainian counterpart, Andriy Deshchytsia, U.S. Secretary of State John Kerry and Catherine Ashton, the European Union’s foreign-policy chief, went on for more than six hours, longer than scheduled.
“The Geneva meeting on the situation in Ukraine agreed on initial concrete steps to de-escalate tensions and restore security for all citizens,” the four said in a joint statement. “All sides must refrain from any violence, intimidation or provocative actions.”
Fed Chair Janet Yellen said yesterday the central bank is committed to policies that will support the recovery. Fed policy makers are unwinding the bond-buying program they have used to support the economy. They have kept their target for overnight lending between banks in a range of zero to 0.25 percent since 2008.
“She was very, very intentional about explaining her vision for the approach to adapting fed policy to economic performance,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee, referring to Yellen. “The fives will be the first place to cheapen as the Fed looks to tighten.”
Futures prices put the likelihood the Fed will start raising rates in July 2015 at 70 percent yesterday, based on trading on the CME Group Inc.’s exchange. The chances for a raise increase in June 2015 fell to 48 percent, compared with 54 percent on April 4.
The Philadelphia Fed’s factory index rose to 16.6 this month, exceeding the 10 forecast in a Bloomberg News survey. Readings greater than zero signal growth in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Jobless claims increased by 2,000 to 304,000 in the week ended April 12 from a revised 302,000 the prior period that was the lowest since September 2007, a Labor Department report showed. The median forecast of 47 economists surveyed by Bloomberg called for an increase to 315,000.
“A lot of the more bearish forecasters are saying maybe the weather was more than we thought and therefore the economy is stronger,” said Carl Riccadonna, senior U.S. economist in New York at Deutsche Bank AG, one of 22 primary dealers that trade with the Fed.
The difference between five- and 30-year yields earlier touched 1.75 percentage points, the lowest since 2009.
A yield curve plots the rates of bonds of the same quality, but different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated bonds rise, or both happen simultaneously. Longer-term bonds tend to rise or fall based on the outlook for inflation, while shorter maturities are anchored by the Fed’s policy rate.
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