Treasuries advanced for a fourth day as concern turmoil in Syria may lead to wider military conflict bolstered demand for government debt as a refuge before the U.S. sells $34 billion in two-year notes.
Benchmark 10-year notes extended their longest winning streak in six weeks after U.S. Secretary of State John Kerry said yesterday Syria will be held accountable for using chemical weapons. The Federal Reserve purchased $5.2 billion in Treasuries maturing between August 2017 and May 2018 as part of its government-debt-buying program. The U.S. will sell $35 billion of five-year notes tomorrow, and $29 billion of seven-year securities the next day.
“The main driver today is from the Middle East - it’s uncertainty,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The auctions will be driven by Fed expectations as opposed to current geopolitical tensions.”
The U.S. 10-year yield dropped three basis points, or 0.03 percentage point, to 2.76 percent at 11:13 a.m. in New York, according to Bloomberg Bond Trader prices, the longest run of declines since July 11. The 2.5 percent note due in August 2023 rose 7/32, or $2.19 per $1,000 face amount, to 97 3/4.
Treasuries have lost investors 3.4 percent this year, including 0.9 percent in August, according to Bloomberg U.S. Treasury Bond Index.
Treasuries investors remained bearish this week, betting that the prices of the securities will fall, according to a survey by JPMorgan Chase & Co. The proportion of net shorts was at 2 percentage points in the week ending yesterday, the same as the previous week according to JPMorgan.
About 19 percent were short in the week ending Aug. 26, down from 21 percent in the week ending Aug. 19. The percentage of investors in the survey betting that Treasury prices will increase dropped to 17 percent, from 19 percent. A long position is a bet prices will rise.
About 64 percent of the clients surveyed by the primary dealer were neutral in the week ending yesterday, up from 60 percent the previous week. The firm does not disclose the number of clients in the survey.
“We’ve backed up considerably over the last couple of weeks,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The auctions should go fine.”
The two-year notes being sold today yielded 0.395 percent in pre-auction trading, compared with 0.336 percent at the previous sale on July 23. Investors bid for 3.08 times the amount offered last month versus 3.05 in June.
Treasury 10-year note yields have risen from a 2013 low of 1.61 percent on May 1 and reached a two-year high of 2.93 percent on Aug. 22. The rise in yields is halted by renewed concern about the U.S. debt ceiling.
Treasury Secretary Jacob J. Lew yesterday told Congress in a letter that the U.S. will hit the $16.7 trillion debt ceiling in mid-October and urged lawmakers to raise the limit as soon as possible.
U.S. government securities that mature Oct. 15 yield a negative 0.006 percent, compared with a positive 0.004 percent yesterday. Treasuries due Oct. 31 yield 0.032 percent, having climbed from 0.029 percent yesterday and 0.027 percent on Aug. 23.
Fed Bank of San Francisco President John Williams, who has never dissented from a policy decision, said global coordinated communication will be needed as policy makers try to wind down stimulus in the world’s largest economy.
“That will help avoid at least somewhat the risks of big market turmoil,” he said today on a panel in Gothenburg, Sweden.
The Fed’s debate about when to taper $85 billion in monthly bond buying has roiled financial markets around the world and sparked a selloff in fixed-income assets. The central bank will vote to scale back stimulus at its Sept. 17-18 meeting, according to 65 percent of economists surveyed this month by Bloomberg.
President Barack Obama will hold the Syrian government accountable for the “indiscriminate slaughter” of its own people with chemical weapons, Kerry said yesterday. Obama hasn’t decided whether the U.S. will take military action in Syria, according to an administration official who asked for anonymity to discuss internal deliberations.
The Conference Board’s index of U.S. consumer confidence increased to 81.5 in August from 81 the prior month, data from the New York-based private research group showed today. The median forecast in a Bloomberg survey called for a reading of 79.
The S&P/Case-Shiller index of property values in 20 cities rose 12.1 percent in June from the same month in 2012 after gaining 12.2 percent in the year ended in May, which was the biggest gain since March 2006, the group said today in New York.
Revised figures from the Commerce Department on Aug. 29 will show the economy grew at a 2.2 percent annualized rate in the second quarter, compared with an initial estimate of 1.7 percent, according to a separate survey.