Treasuries rose for a fourth day in their longest winning streak in almost a month as an unexpected drop in U.S. home sales added to skepticism that the pace of the economic recovery will diminish the refuge appeal of U.S. debt.
Thirty-year bond yields fell below their 200-day moving average, indicating this month’s slump in prices that pushed them to a six-month high may be drawing to a close. The gap in yields between 10-year notes and Treasury Inflation Protected Securities fell for a third day as investors bet surging oil prices will weigh on growth rather than fuel inflation. Reports this week showed slowing in China and the euro region.
“We haven’t seen tremendously robust growth in the U.S. that would counteract negative news out of Europe,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The strong run in yields to the upside made yields more attractive, and since then there has been the revelation with weaker data out of Europe and China that everything is not yet all right with the world.”
Yields on 10-year notes dropped five basis points, or 0.05 percentage point, to 2.23 percent at 5:15 p.m. New York time, according to Bloomberg Bond Trader prices. They touched 2.21 percent. The 2 percent securities due in February 2022 rose 13/32, or $4.06 per $1,000 face amount, to 97 30/32.
Thirty-year bond yields slid five basis points today to 3.31 percent and touched 3.30 percent, the lowest since March 14, falling below their 200-day moving average of 3.3343 percent. They rose above the average on March 14.
‘Signaling a Rejection’
“That the breaking the 200-day moving average didn’t propel us to sell off further is signaling a rejection of the rising yield trend,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The market has readjusted the range in the recent steep selloff, and now the market is pausing to reinvestigate.”
Ten-year yields fell six basis points this week, paring their advance since March 2 to 26 basis points. The drop reversed a nine-day climb, the longest run of increases since 2006. The yields touched 2.4 percent on March 20, the highest in almost five months, after the Fed on March 13 raised its assessment of the economy. The improved outlook reduced bets the central bank will buy more debt under quantitative easing and fueled investor appetite for riskier assets.
‘Ahead of Itself’
“Clearly yields moved on the idea we were closer to the end of accommodative policy, but that position is ahead of itself,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “Growth concerns are re-emerging.”
Treasuries extended gains today, pushing 10-year yields to the lowest since March 14, as the Conference Board said in Beijing its leading economic index for China rose 0.8 percent last month to 227.2 in a preliminary reading. That compared with a 1.5 percent gain in January.
German 10-year bunds advanced as investors sought safety, pushing yields down five basis points to 1.87 percent. The yield difference between bunds and 10-year Treasuries matched the widest since February 2011, 37 basis points.
Bunds and Treasuries rose yesterday as London-based Markit Economics said in an initial estimate that a euro-area composite index based on a survey of purchasing managers in services and manufacturing dropped to 48.7 this month from 49.3 in February. The median forecast in a Bloomberg survey of economists was for a gain to 49.6. A reading below 50 shows contraction.
Crude oil surpassed $108 a barrel for the first time in four days, with May futures rising as much as 2.5 percent to $108.25 in New York, the highest in three weeks. The average price over the past decade is $65 a barrel.
The yield difference between 10-year TIPS and nominal notes, which signals the annual rise in consumer prices traders expect over the next decade, shrank to 2.37 percent. It rose to 2.45 percent on March 20, the highest level since August.
“It’s impossible to stay insulated against any other slowdown in the rest of the world,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “That bodes well for bonds.”
Bonds extended gains today after Commerce Department data showed sales of new homes in the U.S. dropped in February for a second month. They fell 1.6 percent to a 313,000 annual pace, the slowest since October, from a revised 318,000 rate in January, department figures showed. The median estimate in a Bloomberg survey was for an increase to 325,000.
Treasury-market volume fell for a second day. About $190 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, the least since March 12, compared with $260 billion yesterday. The average daily volume over the past year is $267 billion.
Volatility eased yesterday. Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, fell to 87.1. It reached 93.3 on March 20, the highest level this year.
The Treasury will auction $99 billion in notes next week: $35 billion of two-year securities on March 27, the same amount of five-year debt on the following day and $29 billion of seven-year notes on March 29. The amounts are the same as the last time the government sold the securities, in February.
The U.S. drew a record low negative yield yesterday at a sale of $13 billion of 10-year TIPS. The offering yielded negative 0.089 percent, the second sale of 10-year inflation-linked notes in a row at which it was less than zero.
The Fed acquired $1.97 billion in Treasuries today due from February 2036 to August 2041 as part of its plan to cap borrowing costs by replacing $400 billion in shorter-term debt in its holdings with longer-term securities. The operation concluded five straight days of purchases, the most in a row since January.
The central bank bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011 to spur growth. It reiterated on March 13 a pledge to keep interest rates at virtually zero through at least late 2014.