Treasury 10-year yields may climb to 2.4 percent before Federal Reserve policy makers meet June 18-19, especially if reports today on U.S. jobless claims and retail sales show improvement, according to Steven Ricchiuto at Mizuho Securities USA Inc.
The yield was as high as 2.29 percent this week, a level not seen since April 2012. One driver of the increase is the Fed’s dicussion whether to begin tapering its bond purchases, Ricchuito, the New York-based chief economist at the unit of Japan’s third-biggest financial group by market value, wrote in an e-mailed report dated yesterday.
The yield may approach 3 percent if the Fed fails to calm market concerns with its policy statement or Chairman Ben S. Bernanke’s press conference after the meeting, according to Ricchiuto, whose company is one of the 21 primary dealers that trade directly with the central bank.
“Even a small tapering by the Fed will be seen as a tightening by the markets,” Ricchuito wrote.
Yields on the 10-year note, a benchmark for mortgage and corporate loans, fell five basis points to 2.17 percent as of 8:35 a.m., in London, according to Bloomberg Bond Trader data. The price of the 1.75 percent due in May 2023 rose 15/16, or $4.69 per $1,000 face amount, to 96 7/32.
The 10-year yield will be 1.92 percent at the end of June, rising to 2.22 percent by year-end, according to a Bloomberg survey of economists in which the most recent forecasts are given the heaviest weighting.
Treasury yields may also rise as a result of traders hedging positions by shorting government debt, and sales by investors to protect against fluctuations in mortgage bonds, according to the report. A short position is a bet an asset will decline in value.
Sales at U.S. retailers probably gained by 0.4 percent last month, according to the median forecast of 83 economists surveyed by Bloomberg News. Sales advanced 0.1 percent in April.
Initial jobless claims are expected to remain unchanged at 346,000 in the week ended June 8, a separate Bloomberg survey shows.