Treasuries fell before the U.S. sells $13 billion of 30-year securities in the final of three note and bond auctions this week totaling $66 billion.
U.S. debt rallied earlier as a report showed initial jobless claims unexpectedly rose last week, reigniting concern the economic recovery is slowing. The Federal Reserve bought $4.5 billion in Treasuries as part of its plan to bolster the economy. Producer prices were unchanged in March, the Labor Department reported.
“Yield levels are a little too rich at this point and the market may have a hard time digesting supply,” said Thomas Simons, a government-debt economist in New York at Jefferies Group Inc., one of 21 primary dealers that trade with the Fed.
The benchmark 10-year note yield rose two basis points, or 0.02 percentage point, to 2.04 percent at 12:33 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent security due February 2022 fell 7/32, or $2.19 per $1,000 face amount, to 99 15/32. The yield fell as much as three basis points, or 0.03 percentage point, earlier.
Thirty-year bond yields rose three basis points to 3.22 percent.
Valuation measures show government debt has dropped from the most expensive levels in almost five weeks. The term premium, a model created by economists at the Fed, reached negative 0.58 percent today after touching negative 0.65 percent on April 10.
It reached negative 0.26 percent on March 19, the least expensive since October. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
The 30-year bonds being sold today yielded 3.23 percent in pre-auction trading, versus 3.383 percent at the previous auction in March. Investors bid for 2.7 times the amount of debt offered last month, versus the average of 2.65 percent for the past 10 auctions.
The U.S. sold $21 billion in 10-year notes yesterday. The auction drew a yield of 2.043 percent, compared with a forecast of 2.040 percent in a Bloomberg News survey of 10 of the Fed’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.08, compared with an average of 3.13 for the past 10 sales.
The government announced plans to sell $16 billion of five-year Treasury Inflation Protected Securities on April 19. The U.S. sold $12 billion of the securities at the previous sale Dec. 15.
Volatility rose yesterday from the lowest in a month. Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, rose to 76.3 basis points. It dropped to 75 basis points on April 10, the lowest since March 13. It reached 93.3 basis points on March 20, the highest level this year.
Wholesale prices in the U.S. excluding food and fuel rose more than forecast in March. The so-called core producer price index climbed 0.3 percent after a 0.2 percent rise the previous month, Labor Department figures showed today in Washington. Economists projected a 0.2 percent gain, according to the median estimate in a Bloomberg News survey. The overall gauge was little changed after a 0.4 percent rise.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices during the life of the debt known as the breakeven rate, was 2.31 percentage points. The average for the past decade is 2.14 percentage points.
A measure of traders’ inflation expectations that the Fed uses to help guide monetary policy was at 2.55 percent, below its 2.76 percent average during the past decade. It touched 2.78 percent on March 19, the highest in 2012.
It reached 3.23 percent in August, the highest since December 2010. The five-year, five-year forward break-even rate projects annual price increases over a five-year period beginning in 2017.
Jobless claims climbed to 380,000, the most since Jan. 28, the Labor Department reported. The median forecast of 46 economists in a Bloomberg News survey was for a drop in jobless claims to 355,000 in the week ending April 7.
U.S. employers added 120,000 jobs in March, lower than the 205,000 median forecast in a Bloomberg News survey before the Labor Department report on April 6.
“Combined with the weaker nonfarm payrolls, this uptick in initial jobless claims will cause people to reassess their assumptions that the labor market will continue to improve,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
The Fed bought Treasuries due from May 2020 to November 2021, according to the New York Fed’s website. The central bank is replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.