Treasury 10-year note yields fell from almost the highest level in a week after sales of U.S. existing homes unexpectedly dropped in December, casting doubts on the strength of the real-estate recovery.
The benchmark yield dropped as home sales were restrained by the lowest supply of properties in more than a decade. Yields rose earlier as inflation expectations increased to the highest in almost three months before the U.S. sells $15 billion in inflation-indexed debt this week.
“The housing figure was disappointing,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc. “People are starting to spend much more time wondering and worrying about the U.S. economy. That’s why we’ve had an uptrade.”
The 10-year yield was unchanged at 1.84 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. It rose earlier four basis points to 1.88 percent after touching 1.89 percent on Jan. 18, the highest since Jan. 11. The 1.625 percent note due in November 2022 closed at 98 2/32.
Treasuries handed investors a 0.4 percent loss this month through yesterday, while bonds in an index of sovereign debt around the world declined 0.2 percent, according to Bank of America Merrill Lynch data.
Purchases of existing U.S. homes fell 1 percent to a 4.94 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The median forecast was for an increase to a 5.10 million annual rate last month, according to the estimate of 69 economists surveyed by Bloomberg.
A weaker existing-home-sales report “puts a little curve ball into the mix, given how the data have been decent,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade with the Federal Reserve. Yields have been “at the top end of a tight range.”
Yields show inflation expectations in the U.S. are rising before the U.S. auctions the Treasury Inflation Protected Securities on Jan. 24.
The U.S. previously sold $13 billion of the securities on Nov. 21 at a yield of negative 0.72 percent, compared with the record-low yield of negative 0.75 percent at the September auction. The last six note sales since January 2012 have drawn negative yields.
The difference between rates on 10-year notes and similar-maturity TIPS, a gauge of expectations for consumer prices over the life of the securities, widened to as much as 2.55 percentage points today, the most since Nov. 2. The average over the past decade is 2.19 percentage points.
The Fed is purchasing $85 billion of government and mortgage debt each month to spur the economy by putting downward pressure on bond yields. It bought $1.39 billion of TIPS maturing from April 2017 to February 2042 today as part of the program.
Yields on the 10-year note are forecast to rise to 2.2 percent by year-end, according to economists in a Bloomberg News survey.
“This 1.89 percent level will be tested, but should hold today,” said Thomas di Galoma, a managing director at Navigate Advisors LLC, a brokerage for institutional investors in Stamford, Connecticut. “However, if we test it again, we could break to higher yields. That’s the pivotal level.”
Bonds in an index of riskier debt yielded 4.88 percentage points more than Treasuries on average, the smallest spread since May 2011, Bank of America Merrill Lynch data show.
The MSCI All-Country World Index of shares gained 17 percent last year including reinvested dividends, according to data compiled by Bloomberg. Treasuries returned 2.2 percent and investment-grade corporate bonds gained 10 percent, Bank of America data show.