Treasuries fell, reaching the biggest two-day rise in yields since February, after a report showed residential construction in the U.S. surged in April to the highest level in more than seven years.
Ten-year yields extended gains as Federal Reserve policy makers monitor economic indicators as they consider when to raise interest rates. U.S. debt rallied earlier after European Central Bank Executive Board member Benoit Coeure said officials will expedite bond purchases in anticipation of lower liquidity in the summer months.
“That’s a rocket ship of housing starts,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which manages $61 billion in assets. “It’s definitely a good sign -- how good depends on how much it’s sustained. It’s perceived as economically positive and bonds unfriendly.”
Treasury 10-year yields rose six basis points, or 0.06 percentage point, to 2.29 percent at 5:05 p.m. in New York, according to Bloomberg Bond Trader data. The benchmark 2.125 percent note maturing in May 2025 dropped 15/32, or $4.69 per $1,000 face amount, to 98 17/32.
Yields jumped 15 basis points during the first two days this week. Treasuries maturing in 10 years or longer have lost 4.3 percent this month, on track for the worst performance since February, according to Bloomberg U.S. Treasury Bond Index data.
Housing starts increased 20.2 percent to a 1.14 million unit annualized rate, the most since November 2007, a Commerce Department report showed. The increase fueled speculation the U.S. economy may strengthen during the second quarter after a sluggish first quarter.
“Because the data was so strong, you’re seeing a follow through and people are preparing themselves for a stronger second quarter,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of 22 primary dealers that trade with the Fed. Policy makers “feel the economy is deserving of a rate hike, but they need the cover to do it.”
The Fed is scheduled to publish the minutes of its April 28-29 meeting on Wednesday. The central bank will probably boost borrowing costs in about eight months, compared with about six months in March, a Morgan Stanley index indicates.
Other central banks in Europe and Japan are pumping record amounts of money into their economies to combat the threat of deflation.
The ECB intends to increase its purchases of euro-area assets in May and June to counter “seasonal patterns in fixed-income market activity with the traditional holiday period from mid-July to August characterized by notably lower market liquidity,” Coeure said, according to the text of a speech delivered in London on Monday.
The U.S. yield exceeded bunds by 170 basis points, the most since May 1. Benchmark German 10-year bund yields fell five basis points to 0.59 percent and touched 0.55 percent, the least since May 11.