Treasury 10-year notes fell for the first time in four days as investors sought higher-yielding assets amid a recovery in gold and equities, damping the refuge appeal of government debt.
Benchmark yields climbed from the lowest level since December amid bets the 17-basis-point decline this month through yesterday was excessive. Treasury volatility fell to the lowest since December yesterday. The securities remained lower after new-home construction in the U.S. jumped more than forecast in March and the cost of living declined. Federal Reserve Board Vice Chairman Janet Yellen said she favors holding the benchmark interest rate “lower for longer.”
“We’re being driven by external markets, notably what’s going on in equities,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It’s created a reluctance to buy the Treasury market in a bit of a risk-on move.”
The U.S. 10-year yield rose four basis points, or 0.04 percentage point, to 1.72 percent at 5 p.m. in New York after falling to 1.67 percent yesterday, the lowest level since Dec. 12. The 2 percent note due February 2023 dropped 3/8, or $3.75 per $1,000 face amount, to 102 1/2, according to Bloomberg Bond Trader prices.
The 10-year yield traded below its 200-day moving average of 1.74 percent for a third straight day. Moving averages are indicators of momentum.
Treasury volatility as measured by the Bank of America Merrill Lynch MOVE index was 51.93 basis points as of 4:17 p.m. in New York, the lowest level since Dec. 11. The gauge, which tracks the outlook for swings in U.S. government-debt rates, has averaged 63.8 basis points in the past year.
The Fed’s Yellen cautioned that some bond-market investors may be paying too much for higher yields. The central bank’s low-rate policies are intended “to promote a return to prudent risk-taking” in credit markets, she said today in remarks prepared for an International Monetary Fund discussion panel on monetary policy. “Obviously, risk-taking can go too far.”
The central bank has left its funds target rate at zero to 0.25 percent since December 2008.
Fed Bank of Chicago President Charles Evans said in a speech in Chicago he is “optimistic” about U.S. growth in 2013 and next year, adding that the economy still needs record monetary stimulus.
“I would not be surprised if we end up doing this until late 2013, ultimately ending the program in 2014,” he said, referring to the Fed’s program of purchasing $85 billion in government securities each month.
Fed Bank of New York President William C. Dudley said the risk was low that inflation could exceed the central bank’s 2 percent target. “Underlying measures of inflation are subdued,” Dudley said today in prepared remarks for a speech in Staten Island, New York.
Gold for immediate delivery jumped 1.5 percent to $1,367.89 an ounce after tumbling 9.1 percent yesterday, the biggest decline since 1983. The Standard & Poor’s 500 Index gained 1.4 percent after a 2.3 percent plunge yesterday, the most since Nov. 7.
“We rallied on the fear trade yesterday and there was no follow through,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “We’re chopping around at the top end of the range.”
Resistance is at 1.67-to-1.7 percent, where sell orders may be clustered, while the support of buy orders is at 1.8 to 1.82 percent, Roth said.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of inflation expectations known as the break-even rate, shrank to as little as 2.40 percentage points today, the narrowest since Nov. 29.
The consumer-price index dropped 0.2 percent after a 0.7 percent jump in February, the Labor Department said today in Washington. The median forecast in a Bloomberg survey called for no change. The core measure, which excludes volatile food and energy costs, rose 0.1 percent, less than forecast.
The Fed’s five-year, five-year forward break-even rate, fell to 2.69 percent last week, the lowest since before the central bank said in December it would buy $45 billion of Treasuries a month on top of the $40 billion of mortgages it was already purchasing.
“The most significant long-term indicator has been the drop down in CPI -- on the margin, it makes Treasuries a little more attractive,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.
TIPS have returned 0.4 percent this year through yesterday according to Bank of America Merrill Lynch Indexes. Conventional Treasuries returned 0.7 percent.
Housing starts climbed 7 percent to a 1.04 million annual rate, following a revised 968,000 annual rate in February, Commerce Department figures showed. The median estimate in a Bloomberg survey called for 930,000.