Treasuries dropped as investors seek to buy higher-yielding corporate debt, rebuffing government securities at a time when the Federal Reserve is set to raise interest rates.
Thirty-year bonds led losses as Intel Corp. is forecast to sell as much as $9 billion in debt this week to back its purchase of Altera Corp. Investors are starting to believe in a September rate increase as futures show a 38 percent chance the Fed will raise borrowing costs during that month, up from 35 percent a week ago, as Greece’s bailout agreement clears one of the obstacles to higher rates.
“It’s been a pretty solid corporate calendar and we’ve seen that weigh on the market as investors swap out and leave Treasuries for higher-yielding corporates,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co.
Thirty-year bond yields rose one basis point, or 0.01 percentage point, to 3.11 percent as of 10:05 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 3 percent security maturing in May 2045 declined 11/32, or $3.44 per $1,000 face amount, to 97 26/32.
U.S. corporate bond yields were at 4.1 percent Monday, according to Bank of America Merrill Lynch Indexes.
Competition for investor cash has stepped up. Companies in the U.S. have increased borrowing this year to $1.05 trillion, up 9.8 percent from the year before, in part to help fund merger activity, according to Bloomberg data.
Volatility has fallen to the lowest since April, according to the Bank of America Merrill Lynch option volatility estimate, also known as the MOVE index. The measure was at 72.84 Monday compared with an average of 85.08 this year.
Treasuries with maturities of one year and longer have lost 0.2 percent this year, according to the Bloomberg U.S. Treasury Bond Index. U.S. debt securities maturing in 10 years and longer are down 4.1 percent.