Treasuries rose for the first time in seven days as yields at almost the highest levels in 11 months attracted investors before the first of three sales this week of notes and bonds totaling $66 billion.
Benchmark 10-year note yields dropped earlier after data showing U.K. industrial production unexpectedly fell in January reignited concern global growth will slow. The U.S. is scheduled to sell $32 billion in three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year securities on March 14. Yields surged last week as stronger-than-forecast jobs data increased optimism that the U.S. economy is gathering pace.
“These are semi-attractive levels,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Federal Reserve. “The U.S. is not ready to break significantly higher in yields. The three-year will go fine. There are just buyers out there.”
Treasury 10-year yields fell four basis points, or 0.04 percentage point, to 2.02 percent at 12:17 p.m. New York time, according to Bloomberg Bond Trader data. They climbed to 2.08 percent on March 8, the highest level since April 5, and touched 2.07 percent earlier today. The price of the 2 percent note maturing in February 2023 gained 10/32, or $3.13 per $1,000 face amount, to 99 26/32.
Thirty-year bond yields decreased four basis points to 3.22 percent. They reached 3.28 percent on March 8, also the highest since April 5.
Treasuries due in 10 years and more are trading at the cheapest level in 19 months relative to global peers with similar maturities, Bank of America Merrill Lynch indexes show. Yields on the Treasuries were 53 basis points higher yesterday than those in an index of other sovereign debt due in 10 years and more, the indexes show. That was the most since August 2011.
“It represents value against other fixed-income markets,” said Tom Tucci, managing director and head of Treasury trading in New York at Canadian Imperial Bank of Commerce’s CIBC World Markets unit. “We continue to cheapen up against those. We have not been narrowing to them over the course of the last few sessions.”
The three-year notes being sold today yielded 0.41 percent in pre-auction trading, versus 0.411 percent at the prior sale on Feb. 12.
Direct bidders, non-primary-dealer investors that place their orders with the Treasury, purchased a record amount of three-year debt for the third straight month at the February sale. They snapped up 26.9 percent of the securities, topping the previous record of 26.4 percent at the January offering.
Indirect bidders, the investor class that includes foreign central banks, bought 18 percent of the notes, a record low.
The Feb. 12 auction’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of notes offered, was 3.59, versus 3.62 at the previous auction and a record high of 3.96 at the October sale.
U.K. production fell 1.2 percent from December, when it rose 1.1 percent, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 29 economists was for a 0.1 percent increase. Manufacturing output also declined, falling 1.5 percent.
Global stocks fluctuated, and the Standard & Poor’s 500 Index dropped as much as 0.5 percent.
“There’s a little bit of disappointment about the economic figures around the globe, and that’s supportive of Treasuries,” said Ralf Umlauf, head of floor research at Landesbank Hessen-Thueringen in Frankfurt. “We are seeing weaker equity markets as well as bad figures from U.K. industrial production. In the medium-term, yields should rise because the U.S. will show moderate growth.”
U.S. retail sales advanced in February for a fourth month, rising 0.5 percent, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department reports the figure tomorrow.
Government data on March 8 showed the U.S. economy gained 236,000 jobs in February, versus 165,000 projected by a Bloomberg News survey of economists. The unemployment rate unexpectedly fell to 7.7 percent, from 7.9 percent.
The Fed is purchasing $85 billion of Treasury and mortgage debt each month under the quantitative-easing stimulus strategy to fuel growth by putting downward pressure on yields. The central bank bought $1.38 billion today of Treasury Inflation Protected Securities maturing from April 2028 to February 2043.
Fed policy makers’ next meeting is on March 19-20.
Treasuries trading volume dropped yesterday to $185 billion, the least since touching a 2013 low of $183 billion on March 4, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. Volume increased to $384 billion on March 8, the highest since Feb. 26. Average daily Treasuries volume for the past year is $248 billion.