Treasuries rose the most in almost two weeks, pushing the 10-year note yield further below the level when the Federal Reserve voted last month to taper its bond purchases, as reports showed an uneven economic expansion.
The benchmark yield reached a seven-week low as an emerging-market currencies selloff amid slowing economic growth and rising social tension stoked demand for safety. Continuing jobless claims rose last week more than forecast, a manufacturing gauge unexpectedly fell this month, pushing yield further below where it stood after the central bank announced Dec. 18 it would reduce its bond purchases to $75 billion per month from $85 billion amid signs of improved economic growth.
“The Fed isn’t likely to do anything vastly shocking at their upcoming meeting, but the weaker data and the trouble we are seeing in emerging markets may give them reason to pause,” said Richard Gilhooly, an interest rate strategist at Toronto-Dominion Bank’s TD Securities unit in New York. “We had good data, and now we are seeing some changes in the outlook.”
The U.S. 10-year yield fell nine basis points, or 0.09 percentage point, to 2.77 percent at 5:07 p.m. New York time, according to Bloomberg Bond Trader prices. The 2.75 percent note due November 2023 rose 3/4, or $7.50 per $1,000 face amount, to 99 3/4. The yield reached the lowest level since Dec. 3, further below the 2.89 percent level on Dec. 18.
A Bloomberg customized gauge tracking 20 emerging-market currencies fell to 90.12, the lowest level on a closing basis since April 2009, as Argentina devalued the peso, allowing it plunge the most in 12 years, and Turkey’s lira tumbled to a record.
“Buy dips,” William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, a primary dealer, wrote in a note to clients. Economic data will be “less ebullient that what we just witnessed in the same data during Q4.”
Momentum is bullish, he said, citing technical analysis. A yield close below 2.815 percent will lead to lower yields, he said.
The yield curve, or extra yield on 30-year bonds versus five-year notes was 2.08 percentage points, almost the least since September, after averaging 2.27 percentage points during the past year. The gap rose to a two-year high of 2.54 percentage points in November. Historically, a flatter yield curve reflects anticipation of reduced economic growth.
Treasuries have risen this month by the most since September, even after the Federal Open Market Committee voted in December to trim its monthly asset purchases by $10 billion. U.S. debt has returned 0.8 percent in January after falling 1.1 percent the previous month, according to the Bloomberg U.S. Treasury Bond Index.
The Fed decided at its December meeting to reduce monthly bond purchases to $75 billion from $85 billion, starting in January. It will cut purchases in $10 billion increments over the next six gatherings before announcing an end to the program no later than December, according to the median forecasts of economists in a Bloomberg News survey Jan. 10. Policy makers meet Jan. 28-29.
The U.S. sold $15 billion of 10-year Treasury Inflation Protected Securities at the highest yield since May 2011 and announced a $15 billion sale of floating-rate two-year notes next week.
The Treasury’s floating-rate note program is its first added security in 17 years. This kind of debt offers investors a short-term instrument that’s a hedge against a potential rise in interest rates. The securities are considered short term because they are benchmarked to a short-term index -- the high rate from a 13-week bill. The rate at which interest will accrue on the notes will be re-set daily.
Demand for the notes may be robust given a scarcity of money-market securities and a looming debt limit that’s accelerating a decline in bill supply. The inaugural sale of the two-year floaters will be Jan. 29.
“Within the first year of FRN issuance we can expect roughly $130 billion outstanding, making the Treasury one of the largest issuers of FRNs in a short space of time,” Morgan Stanley strategist Guneet Dhingra wrote. “We expect good demand for the new FRNs.”
Treasury also announced plans to sell $32 billion of two-year notes on Jan. 28 and $35 billion of five-year debt and $29 billion of seven-year securities both on Jan. 30.
The TIPS drew a yield of 0.661 percent, compared with the 0.655 percent average forecast of six of the Fed’s 21 primary dealers. Investors bid for 2.31 times the amount available, the least since April 2009.
Inflation-indexed notes pay interest at lower rates than nominal Treasuries on a principal amount that’s linked to the Labor Department’s consumer price index.
U.S. debt rose earlier after a private survey showing Chinese manufacturing unexpectedly contracted to a six-month low.
The Purchasing Managers Index for China fell to 49.6 this month, from 50.5 in December according to preliminary data released today by HSBC Holdings Plc and Markit Economics. The median estimate in a Bloomberg News survey was for a reading of 50.3, above the 50 level which separates expansion from contraction.
The number of people continuing to receive jobless benefits rose by 34,000 to 3.06 million in the week ended Jan. 11, the most since July, Labor Department data showed in Washington. Jobless claims rose by 1,000 to 326,000 in the period ended Jan. 18. The median forecast of 50 economists surveyed by Bloomberg projected 330,000.
The Markit Economics preliminary index of U.S. manufacturing decreased to 53.7 in January from 54.4 a month earlier, the London-based group said. The median forecast in a Bloomberg survey of 21 economists was 55.
“Continuing claims were a little bit high,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “There’s no compelling evidence in the data to change the market sentiment much.”