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Treasuries Rise as Highest Yields in Two Months Renews Demand

Treasury 10-year notes pared a weekly loss as the highest yields since March bolstered demand as investors debated whether the economy is strengthening enough for the Federal Reserve to consider slowing stimulus measures.

Benchmark 10-year yields climbed to the highest level since March 14 yesterday and volatility increased to the most in six months after Fed Chairman Ben S. Bernanke said earlier this week the central bank may cut the pace of asset purchases if policy makers see indications of sustained growth. A government report showed durable goods orders rose more than forecast in April.

“We’re at the top of the range,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “It’s probably a good buying opportunity at these levels. The Fed’s still in buying $85 billion a month. They haven’t tapered that as of yet.”

The 10-year yield fell one basis point, or 0.01 percentage point, to 2 percent at 12 p.m. in New York. The yield rose to 2.07 percent yesterday. The price of the 1.75 percent note due in May 2023 rose 3/32, or 94 cents per $1,000 face value, to 97 22/32. The yield has climbed five basis points this week, the fourth consecutive five-day loss since four weeks ended in August.

Orders for durable goods, those meant to last at least three years, increased 3.3 percent last month after dropping 5.9 percent in March, the Commerce Department said today in Washington. The median forecast from 78 economists surveyed by Bloomberg projected a 1.5 percent increase.

Re-calibrated Views

“The bond market has re-calibrated its views of where fair value is in yields relative to continued expectations of the Fed pulling back some stimulus,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “This seems to be the appropriate level.”

Bernanke said in testimony to the U.S. Congress on May 22 that the central bank may reduce its stimulus at some point. “If we see continued improvement, and we have confidence that that is going to be sustained, then we could in -- in the next few meetings -- we could take a step down in our pace of purchases,” he said.

Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index increased to 68.22 yesterday, the highest level since Nov. 6.

‘Closely Scrutinized’

“The Fed have made it very clear that their monetary policy is data dependent, so sensitivity to data will be even greater than normal,” said Peter Chatwell, a senior fixed-income strategist at Credit Agricole SA in London. “The selloff in Treasuries is to be expected when equity markets are reaching new highs but undoubtedly the move was multiplied by Bernanke’s comments.”

The Standard & Poor’s 500 Index has fallen for three days after rising to a record this week.

Treasuries have handed investors a loss of 1.4 percent this month through yesterday, according to indexes compiled by Bank of America Merrill Lynch. German bunds dropped 1.1 percent.

Business confidence in Germany climbed in May, adding to signs that growth in Europe’s largest economy is gathering pace. The Ifo institute’s business climate index, based on a survey of 7,000 executives, rose to 105.7 from 104.4 in April. Analysts predicted sentiment would remain unchanged, according to the median of 44 forecasts in a Bloomberg News survey.


Treasury Inflation Protected Securities rose yesterday after non-primary dealers bought about 69 percent of the $13 billion of the securities issued. The government’s offering of the notes drew a high yield of minus 0.225 percent, compared with minus 0.602 percent at the March 21 offering, the biggest jump since the January 2011 sale of the maturity. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.52.

The yield on current 10-year TIPS was little changed at negative 0.28 percent after dropping two basis points yesterday.

Indirect bidders, a class of investors that includes foreign central banks, bought 56.8 percent of the 10-year TIPS auctioned yesterday, the highest level since November 2010. They purchased 51.3 percent at the March sale. The average for the past 10 offerings is 44.5 percent.

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