Treasuries fluctuated as the U.S. prepared to sell $16 billion of 30-year securities in the last of three note and bond auctions this week totaling $72 billion.
U.S. debt pared earlier gains as sales at retailers rose in April and the March gain was revised higher. Treasury five-year note yields earlier touched the lowest level since March on concern China will take further action to contain inflation by slowing growth, pushing global equities down.
“The market is taking a pause in front of the bond auction,” said Richard Bryant, head of Treasury trading in New York at MF Global Holdings Ltd., one of 20 primary dealers that trade Treasuries with the Federal Reserve. “The market’s come a long way, so it’s possible we’ll need a concession.”
The yield on the 30-year bond was little changed at 4.31 percent at 11:33 a.m. in New York, according to Bloomberg Bond Trader prices, after touching as low as 4.28 percent. The 4.75 percent security maturing in February 2041 was at 107 11/32. Ten-year note yields were little changed at 3.19 percent.
The Federal Reserve purchased $6.1 billion in Treasuries maturing from November 2013 to April 2015 today.
The 30-year bond being sold today yielded 4.32 percent in pre-auction trading, compared with 4.531 percent at the previous offering on April 14.
Investors bid for 2.83 times the amount of debt offered last month, versus an average of 2.70 for the past 10 sales. Indirect bidders, the investor group that includes foreign central banks, bought 47.2 percent, versus the 10-auction average of 40.9 percent.
The 30-year yield will rise to 4.9 percent by year-end, according to the average forecast in a Bloomberg News survey of financial companies, with the most recent forecasts given the heaviest weightings.
The Treasury auctioned $24 billion of 10-year notes yesterday at a yield of 3.21 percent and $32 billion of three-year debt the day before at 1 percent. This week’s sales raise all new cash rather than partially replacing maturing securities.
U.S. debt posted the best returns in April since August, gaining 1.2 percent, according to Bank of America Merrill Lynch indexes. Treasuries have returned 0.7 percent in May.
The rally in U.S. government debt has pushed 10-year notes to “bubbly” levels amid an economy that shows signs of recovery and rising inflation, according to Deutsche Bank AG.
The 10-year Treasury yield will face upward pressure as the Federal Reserve sheds $1.5 trillion in securities accumulated under two rounds of quantitative easing, which may boost the benchmark rate by 50 basis points, or 0.5 percentage point, economists Peter Hooper, Thomas Mayer, Michael Spencer and Torsten Slok wrote in a report to clients published yesterday.
Sales at U.S. retailers April reflected gains at service stations and grocery stores as fuel and food prices climbed.
The 0.5 percent increase was the smallest since July and followed a 0.9 percent March gain that was more than double the previous estimate, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 0.6 percent rise. Sales excluding automobiles and gasoline increased 0.2 percent.
“The consumer is still in the game,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. It’s not telling you the consumer is retrenching or buying everything off the shelf.”
Wholesale costs in the U.S. rose more than forecast in April, led by higher prices for food and fuel.
The 0.8 percent increase in the producer-price index compares with the 0.6 percent median estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The so-called core measure, which excludes volatile food and energy costs, increased 0.3 percent, more than projected.
Fed Bank of Philadelphia President Charles Plosser said the U.S. economic recovery is nearing a point where the central bank should begin pulling back record stimulus.
“If the economy continues to make progress, then monetary policy will need to exit from its extraordinary accommodation in the not-too-distant future,” Plosser said today in remarks prepared for a speech in Aventura, Florida.
The number of Americans filing first-time claims for unemployment insurance payments fell less than forecast last week, indicating recovery in the labor market is taking time to accelerate.
Applications for jobless benefits decreased 44,000 in the week ended May 7 to 434,000, Labor Department figures showed today. Economists forecast 430,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls rose, while those getting extended payments decreased.
“It’s not a healthy number for the economy,” said Thomas di Galoma, managing director of U.S. government securities in New York at Oppenheimer & Co., the regional broker-dealer unit of Oppenheimer Holdings. “It’s showing weakness.”