Treasuries rose for the fourth time in five weeks as the escalating conflict between Russia and Ukraine as well as weaker-than-forecast reports on housing and jobs spurred demand for the safety of U.S. government debt.
U.S. 30-year bond yields reached a nine-month low yesterday as the Group of Seven nations prepared more sanctions against Russia and as Ukraine’s government said separatists had seized international monitors as hostages. New home sales fell the most in eight months while first-time jobless claims posted the biggest climb since December. The Federal Reserve meeting April 29-30 is projected to produce further reductions to monthly bond-buying while April nonfarm payrolls data on May 2 is estimated to show faster jobs growth.
“Yields reflect a scenario of moderating price pressures and growth that has yet to impress” as well as “the escalation of Russia-Ukraine tension,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York.
Benchmark 10-year yields fell six basis points this week, or 0.06 percentage point, to 2.66 percent in New York, Bloomberg Bond Trader data showed. The price of the 2.75 percent security due February 2024 rose 1/2, or $5 per $1,000 face amount, to 100 23/32.
The 30-year yield fell eight basis points to 3.44 percent, touching 3.42 percent, the lowest since July 3, and is down from 3.97 percent in January. A rally in the bonds pushed returns past 10 percent in 2014, the best start to a year in at least two and a half decades.
Thirty-year debt has gained 10.3 percent since Dec. 31 through April 24, the most for the period based on Bank of America Merrill Lynch data that go back to 1988. The broad market rose 2.1 percent and the Standard & Poor’s 500 Index returned 2.3 percent.
While bonds gained on the outlook for subdued inflation, shorter-term notes have lagged behind on speculation the Fed will raise interest rates at some point next year. The difference between two- and 30-year yields narrowed to 3.01 percentage points yesterday, the least since June.
Real yields on 30-year notes have fallen about a percentage point since November to 1.93 percent, the lowest level since August, according to data compiled by Bloomberg.
The yield on Treasury 10-year notes has fluctuated 0.22 percentage point between 2.81 percent and 2.59 percent this month. That compares with ranges of 0.23 percentage point in March and 0.21 percentage point in February.
“The market is seeking data it doesn’t have and it’s not willing to make a move without it,” said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “We’re in a bloody range.”
Hedge-fund managers and other large speculators reduced their net-short position in 10-year notes futures in the week ending April 22, according to U.S. Commodity Futures Trading Commission data. Bets that prices will fall outnumbered long positions by 145,865 contracts, a decline of 16,413 from a week earlier.
The Treasury will auction $15 billion in two-year floating rate notes April 29. That was the size of the initial offering of the securities in January and an increase of $2 billion compared with the previous two offerings. The U.S. sold $96 billion of fixed-rate notes this week.
First quarter growth in the economy was 1.2 percent at an annual rate, hampered by a colder-than-average winter, and less than half the 2.6 percent from the previous quarter, the Labor department will report on April 30, according to economists surveyed by Bloomberg before the April 30 Commerce Department report. The core personal consumption expenditure index will slow to 1.2 percent at an annual rate, from 1.3 percent the previous quarter, according to a separate survey.
Jobless claims increased by 24,000 to 329,000 in the week ended April 19, the most in a month, an April 24 Labor Department report showed. New-home sales dropped 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, Commerce Department data showed April 23.
The Labor Department will report the U.S. added 215,000 jobs in this month when it releases nonfarm payroll data, according to the median forecast of 41 economists in a Bloomberg News survey. The jobless rate is projected to decline to 6.6 percent from 6.7 percent, according to a separate survey.
“The weather-related impact of the weaker economic data in the first quarter should start to fall away,” said James Caron, who manages money in New York at Morgan Stanley Investment Management, which oversees $61 billion of fixed-income assets. “The market is stuck very much in a wait-and-see mode. We know the big events are next week.”
The Fed’s next meeting is April 29-30. Policy makers will continue to phase out the bond-purchase program they have used to support the economy, according to another Bloomberg survey of analysts. Officials have kept the target for overnight bank lending in a range of zero to 0.25 percent since December 2008.
Futures prices put the likelihood the Fed will start raising borrowing costs in June 2015 at 47 percent yesterday, compared with 63 percent a month earlier, based on trading on the CME Group Inc.’s exchange.
To contact the reporter on this story: Daniel Kruger in New York at firstname.lastname@example.org