Treasuries Advance for First Time in Six Days as ECB Cuts Rates

Treasuries rose for the first time in six days as the European Central Bank cut interest rates, making U.S. yields more attractive.

U.S. two-year yields at 0.39 percent were about 34 basis points more than those on similar-maturity German debt, the widest since 2007, according to closing-price data compiled by Bloomberg. The ECB has become the first major central bank to take interest rates below zero by cutting its deposit rate. Policy makers also lowered their main refinancing rate as forecast in a Bloomberg survey.

“The U.S. looks very cheap versus Europe, but we’re at two different ends of the game,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “Europe is implementing more aggressive easing while the U.S. is backing away from that.”

The U.S. 10-year yield fell two basis points, or 0.02 percentage point, to 2.59 percent at 7:46 a.m. New York time, according to Bloomberg Bond Trader prices. The yield climbed 16 basis points in the previous five days and touched 2.61 percent yesterday, the highest since May 14. The 2.5 percent note maturing in May 2024 rose 5/32, or $1.56 per $1,000 face amount, to 99 1/4.

Volatility Increases

The Bank of America Merrill Lynch MOVE Index, which measures price swings based on options, climbed four basis points to 64.9 basis points yesterday, the biggest gain since April 2.

U.S. government debt declined yesterday after seven of 12 districts saw “moderate” growth, with the rest characterized as “modest,” the Federal Reserve said in its Beige Book business survey, which is based on reports from its district banks.

Separate data showed ISM’s non-manufacturing index increased to 56.3 from 55.2 a month earlier, the Tempe, Arizona-based group said. The median forecast of 75 economists in a Bloomberg survey called for 55.5. Estimates ranged from 54 to 58. Readings greater than 50 signal expansion.

“Overall this Beige Book was marginally stronger than the April edition, though very much in line with the modest/moderate pace that has characterized the economy throughout the past two years,” Marc Ostwald, a rates strategist at Monument Securities Ltd. in London, wrote in an e-mailed note today. “There is nothing in this report to suggest that the FOMC will deviate from its current policy parameters at this month’s meeting,” referring to the Federal Open Market Committee.

The Fed is tapering its monthly asset purchases as officials debate an exit to its ultra-loose monetary policy. The central bank will announce its next policy decision on June 18 after signaling at its April 29-30 meeting that low rates would persist for a “considerable time.”

A U.S. Labor Department report tomorrow will show employers added 215,000 jobs in May, compared with 288,000 in April, according to responses from economists.

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