U.S. 30-Year Bond Yields at Almost One-Year Low Before Auction

Treasury 30-year bond yields traded at almost the lowest level since June 2013 before an auction of the debt as investors sought a refuge amid weaker-than-forecast economic data in the U.S. and Europe.

The $16 billion in 30-year bonds scheduled to be sold today yielded the least in 15 months in pre-auction trading. Treasuries fell earlier as the Labor Department reported claims for jobless benefits in the U.S. rose to a six-week high last week. Economists lowered their forecast for the 10-year note yield at year-end to below 3 percent.

“The expectations were for a more optimistic view on claims, which has not come to pass,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said after the Labor Department report. “The biggest source of demand right now is from overseas.”

Current U.S. 30-year yields fell as much as three basis points, or 0.03 percentage point, to 3.21 percent before trading at 3.24 percent at 12:32 p.m. New York time, according to Bloomberg Bond Trader data. They touched 3.18 percent on Aug. 8, the lowest since June 2013. The price of the 3.375 percent bond due in May 2044 was 102 17/32.

Ten-year yields fell to 2.39 percent before trading at 2.42 percent. Five-year note yields dropped one basis point to 1.57 percent.

The 10-year note yield will end 2014 at 2.92 percent, according to the median forecast of economists surveyed by Bloomberg from Aug. 8-13. The previous estimate was 3 percent.

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The government announced it will auction $16 billion in five-year Treasury Inflation Protected Securities on Aug. 21.

Auction ‘Setup’

Treasuries pared gains as the bond offering, scheduled for 1 p.m. New York time, loomed.

“It’s the setup for the auction,” said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York. “The long end is getting hit -- we’re at such low yields here. The setup is trying to knock the market back so that the street can take down the supply.”

The 30-year bonds to be sold today yielded 3.25 percent in pre-auction trading, which would be the lowest auction level since the May 2013 offering’s 2.980 percent.

The low yield on the long bond may “make it more challenging to take down,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “We’d like to see further concessions from the current levels.”

Auction Demand

At the previous auction of the maturity on July 10, investors submitted orders to purchase 2.4 times the amount of debt available, in line with the average for the past 10 offerings. Indirect bidders, the investor class that includes central banks outside the U.S., purchased 53.2 percent of the securities, the most in more than eight years.

Yesterday’s $24 billion offering of 10-year notes attracted bids for 2.83 times the amount offered, up from 2.57 times in July.

A $27 billion sale of three-year securities on Aug. 12 drew the lowest yield since April at the monthly auctions.

Treasuries rose today as Labor Department data showed U.S. jobless claims climbed by 21,000 to 311,000 in the period ended Aug. 9. Economists surveyed by Bloomberg forecast 295,000. Bonds gained yesterday as the government reported U.S. retail sales stalled in July, the weakest performance in six months.

European Economy

The extra yield investors earn on U.S. 10-year notes versus comparable German bunds was 139.6 basis points. It touched 140.3 basis points on July 31, the most in 15 years based on closing prices.

The euro region’s recovery unexpectedly stalled in the second quarter, underlining the vulnerability of the region to weak inflation and the deepening crisis in Ukraine. Gross domestic product in the three months through June was unchanged from the first quarter, when it increased 0.2 percent, Eurostat, the European Union’s statistics office in Luxembourg, reported. Germany’s economy contracted last quarter and France’s stagnated.

Ukraine sent its own aid to the country’s war-torn east as a Russian convoy with emergency supplies neared the border in defiance of conditions set by the government in Kiev. Russian President Vladimir Putin said his nation shouldn’t isolate itself and pledged to work to halt turmoil.

Bond Return

Long bonds returned 16 percent in 2014 through yesterday, according to Bank of America Merrill Lynch data. The Standard & Poor’s 500 Index of stocks gained 6.7 percent including reinvested dividends.

Shorter-term Treasuries haven’t fared as well. They tend to track what the Fed does with its main interest rate, the target for overnight loans between banks, and investors are betting policy makers will increase the benchmark next year. Treasuries due in two years have returned 0.6 percent this year through yesterday, the Merrill Lynch indexes show.

There’s a 34 percent chance the Fed will increase its benchmark interest-rate target to at least 0.5 percent by June, futures contracts indicate, down from a 51 percent likelihood seen on July 31. The central bank has held its target for the rate in a range of zero to 0.25 percent since December 2008.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey, Kenneth Pringle

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