Treasury 30-year bonds rose as the Federal Reserve’s primary dealers offered fewer than average of the securities for sale as the central bank bought $1.83 billion of longer-maturity debt.
Primary dealers submitted offers equaling $2.43 for each $1 of the securities bought by the Fed, compared with an average of $2.67 in offers since June and $2.81 this year. Dealers have been choosing to hoard their U.S. bonds as speculation grows that a slowing economy and global financial turmoil will only make them more dear. Treasuries briefly erased gains after Italy was able to sell all the debt it planned at an auction of bills, easing concern the European debt crisis is worsening.
“The continued pressure of buying from the Fed is what keeps people buying on these kinds of pops,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of 21 primary dealers that trade with the central bank.
The 30-year Treasury bond yield fell two basis points, or 0.02 percentage point to 2.74 percent at 2:52 p.m. New York time, according to Bloomberg Bond Trader data. The 2.75 percent security due August 2042 rose 10/32 or $3.13 per $1,000 face value to 100 9/32.
The gap between yields on U.S. government debt maturing in two and 30 years was 2.47 percentage points, close to the widest since May 29 when it was 2.56 percentage points. The spread has widened from 2.24 percentage points, the narrowest since January 2009.
A “shooting star” formation on a candlestick chart suggests Treasury 30-year bonds will continue to rally even after a three-week slide, according to CRT Capital Group LLC.
“The pattern are a solid rejection of the bearish sentiment,” David Ader, head of U.S. government-bond strategy at CRT in Stamford, Connecticut, said in a telephone interview. “We made a new high in yield, and subsequent to that we failed to breach that new high, closing lower, which represents a rejection of how far we rose in yield.”
The U.S. central bank has held interest rates near zero since 2008 and plans to keep them there through 2014 to stimulate the world’s biggest economy. The Fed has also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing, or QE.
The bond purchases today are part of the central bank’s effort to support the economy by swapping shorter-term Treasuries in its holdings for longer-maturity ones to cap long-term borrowing costs.
Demand at Italy’s auction of 8 billion euros ($9.9 billion) of its Treasury bills rose above levels at last month’s offering, pulling down yields for its 10-year notes as well.
Italy’s 10-year bonds advanced after the nation auctioned 8 billion euros of the one-year securities today. Investors bid for 1.69 times the amount of bills sold, up from 1.55 times at a sale last month. Germany sold 3.8 billion euros six-month bills at a record-low yield.
There’s been “a tightening of European peripherals on the bill auction,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, a primary dealer. “That’s where the small amount of pressure on Treasuries has come from.”
Italy’s 10-year yield slipped as much as six basis points to 5.84 percent. The rate on similar-maturity Spanish bonds dropped seven basis points to 6.84 percent.
Spanish and Italian bonds rose and the euro gained earlier this month after ECB President Mario Draghi said the Frankfurt-based central bank may buy government debt in conjunction with euro-area bailout funds. The ECB later said it may take such measures only if troubled nations commit to improving their economies and fiscal positions.
The U.S. added 163,000 jobs in July, a government report showed Aug. 3, more than the 100,000 projected by analysts. Sales at U.S. retailers increased 0.3 percent last month, following a 0.5 percent slide in June, according to a Bloomberg survey of economists before tomorrow’s Commerce Department data.
The Labor Department will likely report Aug. 15 that consumer prices rose 1.6 percent for the 12 months through July, according to the median forecast of 39 economists in a Bloomberg News survey.
“We have this sell-off in equities that’s getting people nervous,” said Ira Jersey, an interest-rate strategist at primary dealer Credit Suisse Group AG in New York. “This is happening as we’re getting a sell-off in commodities. One thing that that’s pointing to is the potential for lower headline inflation going forward.”
Japan’s gross domestic product increased an annualized 1.4 percent in the three months through June 30, compared with a revised 5.5 percent in the first quarter, the Cabinet Office said in Tokyo today. A Bloomberg News survey of economists projected 2.3 percent.
GDP in the euro area probably shrank 0.4 percent in the second quarter from a year earlier, another survey showed.
-- Editors: Paul Cox, Dave Liedtka