Treasuries fell, pushing the yield on the benchmark 10-year note up from a one-week low, before a speech by Federal Reserve Chairman Ben S. Bernanke that may help gauge the outlook for monetary stimulus.
U.S. debt had rallied since Vice Chairman Janet Yellen, in her confirmation hearing Nov. 14 to be the next Fed chairman, said she’ll ensure stimulus isn’t removed too soon. The central bank will release minutes of its October meeting tomorrow. Treasuries extended losses as Coca-Cola Femsa SAB, the largest bottler of the soft drink in Latin America, sold $2.15 billion of bonds, according to a person familiar with the offering.
“There is some risk premium being built in as the market is still waiting to see what Bernanke might say tonight and we still have the FOMC minutes tomorrow,” said Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York. “The unexpected announcement of the Coca-Cola deal is weighing on the Treasury market some as more bond supply is entering a somewhat undecided and quiet market.”
U.S. 10-year yields rose four basis points, or 0.04 percentage point, to 2.71 percent as of 5:06 p.m. New York time, according to Bloomberg Bond Trader prices. Yields fell earlier to 2.66 percent, the least since Nov. 8. The price of the 2.75 percent note due in November 2023 fell 11/32, or $3.44 per $1,000 face amount, to 100 3/8.
After sending 10-year Treasury yields more than a percentage point higher from their 2013 low by fueling taper expectations in May and June, Fed officials are weighing when to reduce debt purchases that have swelled the central bank’s balance sheet to a record $3.91 trillion.
Treasuries due in 10 years and longer have lost 9.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. Those maturing between one- and three years returned 0.4 percent, the indexes show.
Investors in Treasuries were long for the first time in four weeks ending yesterday, betting that the prices of the securities will rise, according to a survey by JPMorgan Chase & Co.
The proportion of net longs was at seven percentage points, according to JPMorgan. The percent of outright longs, or bets the securities will rise in value, rose to 26 percent from 19 percent the previous week in the biggest increase since July 1. The percent of outright shorts dropped to 19 percent from 25.
Investors cut neutral bets to 55 percent from 56 percent, the survey reported.
“There’s the potential for some action from the Fed in December, but our base assumption is that they wait until the first quarter of 2014,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
The difference between five- and 10-year yields was 1.35 percentage points, after reaching 1.37 percentage points on Nov. 14, the most since August 2011, as investors bet Yellen will keep short-term rates low.
U.S. 10-year yields will rise to 2.90 percent in March and to 3.39 percent at the end of 2014, according to weighted-average estimates in a Bloomberg survey of analysts.
The U.S. central bank buys $85 billion of Treasuries and mortgage-backed securities each month to put downward pressure on borrowing costs. Officials will pare the purchases to $70 billion a month at their March 18-19 meeting, according to the median economist estimate in a Bloomberg survey on Nov. 8.
The Fed bought $3.17 billion of securities maturing between May 2021 and August 2023 today. Bernanke is scheduled to speak at 7 p.m. in Washington.
Yellen defended bond purchases by the Fed in a letter to a U.S. senator, saying the easing boosted economic growth and provides benefits that exceed its risks.
“By putting downward pressure on longer-term interest rates and helping to make financial conditions more accommodative, the Federal Reserve’s asset purchases have supported a stronger economic recovery, improved labor market conditions, and helped keep inflation closer to its 2 percent objective,” Yellen said in a Nov. 18 response to Senator David Vitter, a Republican from Louisiana.
“Yellen is trying her best to keep the bond market vigilantes at bay,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “She again tried to deliver a dovish tone in the letter, but in doing so it didn’t seem like it sat well with the equity or the bond market. The comments were not dovish enough.”
The Treasury will offer $13 billion of 10-year Treasury inflation protected securities on Nov. 21. The U.S. previously sold the debt on Sept. 19 at a yield of 0.5 percent, the highest since July 2011. TIPs pay interest at lower rates than regular Treasuries on a principal amount that’s adjusted based on the Labor Department’s consumer price index.
The difference between yields on 10-year notes and similar-maturity TIPS, a gauge of expectations for consumer prices over the life of the debt, rose was at 2.19 percentage points, compared with the average of 2.31 percentage points during the past 12 months.