Treasuries Post First Gain in 1 Week as Consumer Sentiment Falls

  • Bonds rise as consumer sentiment falls to lowest in a year
  • Futures show 28 percent chance of Fed rate increase next week

Treasuries rose amid investor demand for safe assets as a reading of consumer sentiment dropped to the lowest level in a year before the Federal Reserve meets next week.

Benchmark 10-year securities ended a three-day slide as crude oil declined. Treasuries extended their advance after the University of Michigan’s preliminary index of consumer sentiment in September missed forecasts and fell by the most since 2012. Policy makers convene Sept. 16-17 to decide whether to raise interest rates for the first time since 2006.

“It’s suggesting that consumers are concerned about recent volatility in financial markets,” said Thomas Simons, government-debt economist in New York at Jefferies Group LLC. “It is incremental evidence arguing against a hike.”

Treasury 10-year note yields fell three basis points, or 0.03 percentage point, to 2.19 percent as of 5 p.m. New York time, based on Bloomberg Bond Trader data. They touched 2.25 percent on Sept. 9, the highest since Aug. 6. The 2 percent security due in August 2025 rose 9/32, or $2.81 per $1,000 face amount, to 98 10/32.

Buyers piled into auctions of notes and bonds this week as the U.S. sold a combined $58 billion of coupon-bearing debt due in three, 10 and 30 years. Investors ranging from central banks to mutual funds purchased the largest portion of 30-year bonds on record at the $13 billion auction Thursday.

Hawkish Fed

Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London, said the fall in Treasury yields may not last as investors may look to close positions “as quickly as possible” before the Fed decision. Ostwald said he expects the central bank to tighten monetary policy this month.

Economists surveyed by Bloomberg are split on whether the Fed will increase interest rates by 25 basis points next week. Futures traders have reduced bets for liftoff, with the probability at 28 percent from 30 percent at the end of last week. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

“Given that we’re less than a week out from the Fed meeting, a lot of people are sitting on their hands and not taking positions,” said Gennadiy Goldberg, a New York-based U.S. rates strategist with TD Securities.

The Labor Department reported that wholesale prices in the U.S. were slightly stronger than economist forecasts in August, restrained by lower fuel costs. Excluding volatile food and energy costs, the price index rose more than expected.

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