Treasuries Gain as Fed Seen Holding Policy Rate After China Cut

  • Yields drop as durable-goods orders, consumer confidence fall
  • Bill rates dip below zero after U.S. debt-ceiling accord

Treasuries rose for a second day on speculation the Federal Reserve will keep its benchmark interest rate at a record low at this week’s policy meeting, after China’s decision to cut borrowing costs highlighted risks to the biggest economies.

Signs of slowing U.S. growth are driving demand for the safety of government securities as a decline in Asian shares helped boost demand for the safest assets. A report showed U.S. durable-goods orders fell in September while another showed Americans’ views of the economy dropped this month by the most since January 2013. The People’s Bank of China reduced its benchmark lending rate on Oct. 23.

"Each day we go with what the data is telling us, and today the data is weakening," said Charles Comiskey, head of Treasuries trading in New York at Bank of Nova Scotia, one of 22 primary dealers that trade with the Fed. "With the Fed tomorrow, we have the statement coming out. I think most people believe it will be somewhat of a cut and paste, but we do have a lot of data."

Benchmark U.S. 10-year note yields fell two basis points, or 0.02 percentage point, to 2.04 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2 percent security due in August 2025 rose 5/32, or $1.32 per $1,000 face amount, to 99 21/32.

Debt Ceiling

Demand for all durable goods -- items meant to last at least three years -- fell 1.2 percent in September, according to a Commerce Department report. The survey median for all durable goods orders was a 1.5 percent decrease.

A separate report showed the Conference Board’s consumer confidence index decreased to 97.6 this month, a three-month low, below the median forecast of 102.9 by economists surveyed by Bloomberg.

"Investment activity isn’t doing all that well heading into the latter part of the year," said Gennadiy Goldberg, an interest-rates strategist in New York with TD Securities, one of the 22 primary dealers that trades with the Fed. "It’s decreasing the odds of a rate hike before year-end."

Bill Rates

U.S. Treasury bill rates dipped below zero after an agreement between the White House and top lawmakers from both parties that will avert a debt default after Nov. 3. The yield on bills maturing Nov. 12 fell to as low as negative 0.01 percent, from 0.14 percent at the end of last week.

The Treasury sold $5 billion in four-week bills, matching the lowest amount offered at an auction since at least 2001, at a rate of 0.01 percent. The Treasury has cut the size of its weekly bill offerings since July as it tried to stay under the debt limit.

The probability the U.S. central bank will increase the benchmark by its December policy meeting is 33 percent, according to futures data compiled by Bloomberg. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current zero to 0.25 percent target range.

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