Treasury Bond Traders Betting on Stability After Volatile Ride

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Traders are beginning to speculate that Treasuries have found some stability after the recent global selloff in fixed-income securities.

Yields on benchmark 10-year notes were little changed Friday after falling the most in a month on Thursday. The 10-year Treasury yield had surged 55 basis points in the past two months, pushing it close to 2.50 percent this week, the highest since October. Volatility as based on Bank of America Merrill Lynch index data has jumped by about 25 percent since the end of April.

A rally in German bunds helped pull U.S. yields lower as European Union President Donald Tusk rebuked Greece for dragging its feet on a debt agreement.

“The market’s a little spooked,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 22 primary dealers that trade with the Federal Reserve.

The benchmark 10-year U.S. yield rose one basis point, or

0.01 percentage point, to 2.39 percent at 4:59 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.125 percent note due May 2025 fell 4/32, or $1.25 per $1,000 face value, to 97 21/32.

“Buyers had been waiting for the momentum to slow” after the selloff, said Aaron Kohli, U.S. interest-rate strategist in New York with BNP Paribas SA. “But it’s more of a temporary reprieve” before the Fed’s policy-setting meeting next week.

Raising Rates

Fed officials say they are watching inflation and labor-market data to determine when to raise borrowing costs for the first time since 2006. Fed fund futures give a 53 percent probability that the central bank will lift rates in September, unchanged from earlier Friday morning, according to data compiled by Bloomberg.

The Labor Department reported Friday that its producer price index rose in May at a pace that was in line with economist forecasts.

Last week, Mark Yusko, chief investment officer of Morgan Creek Capital Management LLC in Chapel Hill, North Carolina, started buying the longest-term Treasuries -- those that mature in 20 years or longer -- through an exchange-traded fund.

“Long-term interest rates should be right around 3 percent,” said Yusko, who has been buying the Direxion Daily 20-Year Treasury Bull 3X Fund, which has levered exposure to long-term Treasuries. “It’s demographics, it’s debt and it’s the balance of deflation and inflation.”

Yields on German 10-year bunds, the euro area’s benchmark sovereign securities, fell five basis points to 0.83 percent after sliding 10 basis points on Thursday, the most in more than two years. Spanish and Italian bond yields rose as the prospect of Greece moving toward a default sparked a selloff in the region’s higher-yielding assets.

(An earlier version of the story corrected the basis point conversion in fifth paragraph.)

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