Treasuries snapped six days of declines before the first of three debt auctions totaling $66 billion this week.
Benchmark 10-year yields were four basis points from the highest level in 11 months. The government is scheduled to sell $32 billion of three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds on March 14. Yields surged last week as a stronger-than-expected jobs gain increased optimism the pace of economic growth will pick up. The extra yield investors demand to hold 10-year Treasuries instead of German bunds widened to the most since June 2010.
“The auction will be an important factor today,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit Global Research in Milan. “People have been reallocating money away from Treasuries, and that has pushed up yields. There has been an underperformance of U.S. yields versus German yields and we think that’s gone too far.”
Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 2.04 percent at 8:57 a.m. London time, according to Bloomberg Bond Trader data. The 2 percent note due February 2023 rose 5/32, or $1.56 per $1,000 face amount, to 99 5/8. The rate climbed to 2.08 percent on March 8, which was the highest level since April.
The yield difference, or spread, between 10-year Treasury notes and similar-maturity German bunds was 54 basis points. UniCredit is betting that the spread will narrow to as little as 20 basis points over the next few weeks, Cazzulani said.
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 54 basis points higher on March 8 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.
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.
“The economy looks quite good, not very strong but strong enough,” said Kei Katayama, who buys non-yen debt for Daiwa SB Investments Ltd. in Tokyo, which manages the equivalent of $51.4 billion and is part of Japan’s second-largest brokerage. “Yields may rise toward year-end.”
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 Fed is buying $85 billion of Treasury and mortgage debt a month to fuel growth by putting downward pressure on yields.
The three-year notes being sold today yielded 0.42 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 time last month. They snapped up 26.9 percent of the securities, topping the previous record of 26.4 percent at the January sale.
Indirect bidders, the investor class that includes foreign central banks, bought 18 percent of the notes, a record low.
Park Sungjin, the Seoul-based head of asset management at Meritz Securities Co., which oversees $7 billion, said he set a bet against five-year notes two weeks ago.
“The U.S. economy is in a recovery,” Park said. Five-year yields may rise past 1 percent by Dec. 31 from about 0.90 percent today, he said.