Treasuries headed for the first weekly loss in five as Philadelphia Federal Reserve President Charles Plosser said the central bank should begin scaling back its bond purchases in the next few months.
U.S. government securities dropped 0.5 percent this week through yesterday, leaving them little changed for the year, Bank of America Merrill Lynch data show. Stocks have surged in 2013, sending the Dow Jones Industrial Average up 13 percent, including dividends, to a record. Several Fed officials favored cutting bond purchases this year and halting the record stimulus by year-end, according to minutes of the March 19-20 meeting of the Federal Open Market Committee released this week.
“There’s a lot of chatter about that,” said Ali Jalai, a Treasuries trader in Singapore at Scotiabank, a unit of Canada’s Bank of Nova Scotia, one of the 21 primary dealers that trade directly with the central bank. “It seems like the Fed wants to stop sooner than later. The economy’s OK. I’m a little short,” with a bet that 10-year notes will fall.
Benchmark 10-year yields were little changed at 1.78 percent as of 8:18 a.m. in London, based on Bloomberg Bond Trader prices. The price of the 2 percent note maturing February 2023 was 101 31/32.
The yield has risen seven basis points since April 5, the first weekly increase since the period ended March 8. It is still less than half a percentage point away from the record low of 1.38 percent set in July.
Japan’s 10-year rate climbed five basis points to 0.62 percent. It has risen from the record low of 0.315 percent set last week after the Bank of Japan doubled its monthly bond purchases to 7.5 trillion yen ($75.4 billion) as it strives to end deflation. A basis point is 0.01 percentage point.
In the U.S., the Fed buys $85 billion of Treasury and mortgage debt a month. Both central banks are trying to spur growth by putting downward pressure on borrowing costs.
The Fed should begin to trim its purchases, barring a slump in the economy, Plosser said yesterday in an interview with Bloomberg Television’s Susan Li in Hong Kong.
A cut should start “in just a few months’ time,” he said.
The Fed last met before the Labor Department reported April 5 the U.S. added 88,000 jobs in March, the slowest growth in nine months.
Plosser, who does not vote on monetary policy this year, said that the report didn’t alter his view. “One month’s number is not enough for me to change my forecast,” he said.
The central bank pledged after its meeting to press on with purchases until the labor market improves “substantially.”
The Fed will probably be slow to take back the money it has pumped into the economy, said Robert Michele, the global chief investment officer for fixed income, currencies and commodities at JPMorgan Asset Management Inc. in New York.
“The period of very low bond yields continues for quite some time,” he said yesterday on Bloomberg Television’s “Market Makers” with Sara Eisen and Erik Schatzker. “A rapid rise in interest rates is not something anyone wants to see right now, least of all the Federal Reserve,” said Michele, who helps oversee more than $154 billion.
Retail sales stagnated in March, economists said before the report today.
The value of purchases was little changed, according to the median forecast of economists surveyed by Bloomberg News, after a 1.1 percent increase in February that was the biggest gain in five months. Separate reports today may show wholesale prices fell last month and consumer sentiment was little changed in April.
Retail sales will probably be weak enough to support bonds, said Allen Lei, a Taipei-based Treasuries trader at Hontai Life Insurance Co., which has $6 billion in fixed-income assets. Lei said he planned to buy Treasuries before the Commerce Department report, scheduled for 8:30 a.m. in Washington.
The bulls are in a minority. Treasury yields will rise to 1.95 percent by June 30, according to a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.