Treasuries interrupted a four-week rout after a technical indicator showed yields have climbed to levels that may increase demand.
A “spectacular selloff” in prices paused when 10-year rates climbed as high as 1.86 percent yesterday, matching the 200-day moving average, said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. Treasuries tumbled this month as data on building permits, industrial production, retail sales and jobs all showed improvement.
The 10-year yield fell one basis point from yesterday’s closing level to 1.82 percent as of 7:25 a.m. in London, according to Bloomberg Bond Trader data. The 1.625 percent security due in August 2022 rose 1/8, or $1.25 cents per $1,000 face amount, to 98 7/32. The rate climbed 36 basis points over four weeks, the longest run of increases since December 2010.
“We have seen a liquidation,” said Akira Takei, the head of the international fixed-income department at Mizuho Asset Management Co., which oversees the equivalent of $41.5 billion and is a unit of Japan’s third-biggest publicly traded bank. “The U.S. Treasury market now has very good value.”
Takei said he sold 10-year note futures contracts in July and is considering buying them back.
Japan’s 10-year rate fell 2 1/2 basis points, or 0.025 percentage point, to 0.83 percent. It was the first decline in four days.
The index of U.S. leading economic indicators probably rose 0.2 percent in July from June, rebounding from a 0.3 percent decline, according to a Bloomberg News survey of economists before the Conference Board releases the figure today. The report gauges of the outlook for the next three to six months.
There’s less chance the Federal Reserve will increase its bond purchases to spur the economy, a policy known as quantitative easing, Chatwell said yesterday in an interview on the “Bloomberg - The First Word” radio program with Ken Prewitt.
“It’s quite a spectacular selloff,” he said. “There’s a lot more optimism within the market with regard to the outlook for the U.S. economy.” There’s less risk that the Fed has to undertake more quantitative easing “in the short-to-medium term,” he said.
Yields at the 200-day average show there has been an “overshoot” in the market, he said.
“The bearish momentum is very strong” in the Treasury market, said Will Tseng, who studies technical levels for Treasuries at Shin Kong Life Insurance Co., which is based in Taipei and has the equivalent of $52.8 billion in assets. “I don’t think the 200-day level will be a barrier to stop the selloff.”
The next target will be 2 percent if yields rise beyond the 200-day average, Tseng said. He is avoiding Treasuries, he said.
Fed Reserve Bank of Minneapolis President Narayana Kocherlakota said the U.S. central bank has gone too far by pledging to hold its main interest rate near zero at least through late 2014. The Fed reiterated the pledge Aug. 1 as it seeks to support the U.S. economy.
“I would not have chosen to put that date as far out as the committee has chosen,” Kocherlakota said in response to an audience question after a speech yesterday in Williston, North Dakota.
U.S. government securities have handed investors a 1.6 percent loss this month as of yesterday, according to Bank of America Merrill Lynch indexes, as the nation’s economy and the European debt crisis both showed signs of improving. An index of sovereign bonds around the world slid 0.7 percent, reflecting waning demand for the relative safety of debt.
The MSCI All-Country World Index of stocks returned 3.1 percent including reinvested dividends, according to data compiled by Bloomberg.
The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, has widened to 2.27 percentage points from 2.08 percentage points a month ago. The average over the past decade is 2.15 percentage points.
Germany’s Chancellor Angela Merkel backed the European Central Bank’s conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro.
“Time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,” Merkel told reporters in Ottawa yesterday at a joint press conference with Canadian Prime Minister Stephen Harper. Euro-area policy makers “feel committed to do everything we can to maintain the common currency.”