Treasury 10-year notes gained for a second day after retail sales in the U.S. unexpectedly fell in March and as large speculators raised their net-long positions on the securities’ futures to the highest level this year.
Benchmark 10-year yields declined the most on a closing basis in six weeks as separate reports showed measures of wholesale prices and consumer sentiment fell more than forecast, adding to speculation the Federal Reserve won’t end its monetary stimulus anytime soon. Speculative long positions, or bets prices will rise, outnumbered short positions by 120,779 contracts on the Chicago Board of Trade in the week ending April 9, rising 9 percent from the previous week to the highest level since Dec. 17, U.S. Commodity Futures Trading Commission data showed.
“The push to the low rates has been a perfect storm -- starting with Europe, Japan, the Fed and now weak U.S. data,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “We’ve had an onslaught of bad data in the U.S. and there isn’t much to stake bearish views on. Ultimately, it gives the Fed cover to keep buying.”
Benchmark 10-year yields fell seven basis points, or 0.07 percentage point, to 1.72 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. It was the biggest drop since Feb. 25. The price of the 2 percent note maturing February 2023 rose 5/8, or $6.25 per $1,000 face amount, to 102 17/32.
Yields on 30-year bonds fell eight basis points to 2.92 percent after closing above 3 percent yesterday for the first time in a week.
Treasury 10-year yields fell on April 4 after Bank of Japan Governor Haruhiko Kuroda said the central bank would double its asset purchases, to 7.5 trillion yen ($76 billion) of bonds a month, in a bid to encourage inflation. Japan held $1.12 trillion of U.S. debt, Treasury data through January shows.
Fed Chairman Ben S. Bernanke said on April 8 economic conditions “are clearly still far from where we would all like them to be,” stoking speculation the central bank will need longer to exit its stimulus program.
The Fed bought $1.484 billion of Treasuries maturing between February 2036 and February 2043 today as part of its $85 billion of monthly Treasury and mortgage debt buying in the third round of its quantitative-easing strategy to spur economic growth.
“The economic data is pointing to a weak and weakening economy, which continues to keep a bid in Treasuries,” said Scott Graham, head of government-bond trading at Bank of Montreal’s BMO Capital Markets unit in Chicago, one of 21 primary dealers that trade with the Fed. “With such aggressive global central-bank action, the onus is squarely on good data to get the market to higher yields, and we just haven’t seen that yet.”
The 0.4 percent decrease in retail sales, the biggest since June, followed a 1 percent gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading. Department stores and electronics dealers were among the weakest showings.
The producer price index dropped 0.6 percent, the biggest since May, following a 0.7 percent gain in the prior month, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of 75 economists called for a 0.2 percent decline.
The Thomson Reuters/University of Michigan preliminary sentiment index for April fell to 72.3 from 78.6 in March. No change was projected for this month’s reading compared with March, according to another Bloomberg survey.
“Those are pretty ugly numbers,” Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, one of 21 primary dealers that trade directly with the Fed. “In an environment where you have very slow jobs growth and poor sales, the two of those things don’t bode well for the economy. An early reduction in quantitative easing is further off the table because of these numbers.”
Bond fund managers are retreating from the most defensive bets in more than four years on U.S. debt investments as a sudden slowdown in job creation mutes the risk of a rise in interest rates.
Fixed-income money managers overseeing a combined $130 billion have increased their asset-weighted duration, a reflection of how long the debt they own will be outstanding, to 98.6 percent of target benchmark indexes as of April 9 from 97.2 percent on March 19, the least since September 2008, according to a survey by Stone & McCarthy Research Associates in Plainsboro, New Jersey.