Treasuries gained for the longest stretch since April as emerging-markets losses and signs of slower U.S. economic growth led investors to seek safe assets.
The benchmark 10-year yield reached the lowest level since November as a gauge of Chinese manufacturing showed contraction, Argentina’s peso plunged the most since 2002 and Turkey’s lira fell to a record. Short-term bill rates rose, with four-week rates reaching the most since October, on concern a U.S. debt-ceiling impasse next month may damp demand. The Federal Reserve meets next week, while the Treasury will offer floating-rate two-year securities in an inaugural sale.
“You have a softening in the global economy, and a flight away from risky assets, especially the emerging markets, as well as less momentum in U.S. economic data,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.
The 10-year yield fell 10 basis points, or 0.10 percentage point, to 2.72 percent, after sliding to 2.70 percent, the lowest since Nov. 26, according to Bloomberg Bond Trader prices. The price of the 2.75 percent note due November 2023 rose 7/8, or $8.75 per $1,000 face amount, to 100 9/32.
Treasuries headed for the biggest monthly advance since May 2012, even after the Federal Open Market Committee voted in December to trim monthly asset purchases by $10 billion. U.S. debt has returned 1.2 percent after falling 1.1 percent the previous month, according to the Bloomberg U.S. Treasury Bond Index.
The U.S. announced a $15 billion sale of floating-rate two-year notes for Jan. 29. The Treasury’s floating-rate note program is its first added security in 17 years.
This 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.
The U.S. will auction five- and seven-year notes on Jan. 30, the first time it will conduct two fixed-coupon debt sales in a single day since October 2008. At that time, it sold $60 billion in debt to relieve shortages in Treasuries that were leading to unprecedented failures to deliver or receive U.S. government securities in trades in the market for repurchase agreements, or repos.
The Treasury will also sell $32 billion in two-year fixed-rate notes on Jan. 28.
Hedge-fund managers and other large speculators increased their net-short position in 10-year note futures in the week ending Jan. 21, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 58,391 contracts, up 15 percent from a week earlier.
One-month bill rates rose five basis points to 0.06 percent, reaching the most on a closing basis since Oct. 27. Three-month bill rates reached 0.05 percent, the highest level since Jan. 6.
Speaking at a World Economic Forum Session Jan. 23, Treasury Secretary Jacob J. Lew reiterated a call for Congress to raise the federal debt ceiling as soon as possible and assume that the extraordinary measures used to stay under the limit will run out in late February. President Barack Obama signed legislation last year to suspend the limit until Feb. 7 and end a 16-day partial government shutdown.
“There have been some concerns about the hard debt ceiling timeline that is causing kinks in the bill curve, and that combined with the move in emerging markets, and the possibility that those central banks may have to sell their Treasuries to support their currency is inducing some selling in bills,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 21 primary dealers that trade with the Fed.
Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.
“The last two days have been a flight to quality,” Ira Jersey, an interest-rate strategist at primary dealer Credit Suisse Group AG in New York, said yesterday.
The Commerce Department will say on Jan. 27 sales of new homes fell in December for a second-straight month, while a report the next day will show growth in durable goods orders slowed, economists forecast in separate Bloomberg surveys.
The yield curve, or extra yield on 30-year bonds versus five-year notes, was 2.09 percentage points, almost the least since September. Historically, a flatter yield curve reflects anticipation of reduced economic growth.
The Fed decided at its December meeting to reduce monthly bond purchases to $75 billion from $85 billion, starting in this month.
The central bank, which meets Jan. 28-29, 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.
“There’s still a pretty high hurdle for the Fed not to taper next week,” said Credit Suisse’s Jersey. “In a way, a rally helps them a little bit because they don’t have to worry about yields spiking significantly higher above where they were because of the next announcement of tapering.”
Treasury 10-year yields will rise to 2.89 percent by March 31, according to the weighted average forecast of economists polled by Bloomberg. That compares with a projection of 3.02 percent on Jan. 6, the highest since Bloomberg started tracking the data in October 2012.