- U.S. 30-year note yield reaches highest level since Sept. 21
- Jobless claims, consumer spending data in line with estimates
Treasuries fell for a second day, pushing 30-year yields to a one-month high, after the Federal Reserve on Wednesday left open the possibility of an interest-rate increase this year.
Yields rose after separate reports showed U.S. gross domestic product grew at a 1.5 percent annual rate in the third quarter, in line with the 1.6 percent median forecast of economists surveyed by Bloomberg, and jobless claims held near a four-decade low. Traders lifted the probability the Fed will raise its benchmark rate at its next meeting to 50 percent from 37 percent on Wednesday before the central bank released its policy statement.
"The data was good," said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. The Fed has "told us if we meet expectations they expect to raise rates. The Fed is telling you December is more in play than what’s been priced in."
The 30-year bond yield rose by eight basis points, or 0.08 percentage point, to 2.96 percent as of 5 p.m. in New York, touching the highest on a closing basis since Sept. 21, according to Bloomberg Bond Trader data. The price of the 2.875 percent security due August 2045 fell 1 18/32, or $15.63 per $1,000 face amount, to 98 11/32. Treasury 10-year note yields rose seven basis points to 2.17 percent.
Issuance of highly rated corporate bonds also put pressure on Treasuries as Microsoft Corp. was expected to sell $13 billion debt in as many as seven parts. Microsoft is one of only three non-financial companies with top AAA credit ratings.
"There seemed to be a bit of issuance that had been on hold until being on the other side of the Fed, so that issuance came back," said Neil Bouhan, an interest-rate strategist at BMO Capital Markets in Chicago. "You’ll see in these environments Treasury holders making room to take in new corporate supply."
The U.S. sold $29 billion of seven-year debt on Thursday at a yield of 1.885 percent. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.55. The average ratio at the past 10 sales was 2.44.
Demand was "satisfactory, but unable to stop the bleeding in 10s and 30s," wrote Jim Vogel, an interest-rate strategist at FTN Financial Capital Markets in Memphis, Tennessee.
Indirect bidders, a class of investors that includes foreign central banks, bought 62.3 percent of the notes, compared with an average of 54.24 percent at the past 10 sales. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 14 percent, compared with a 10-sale average of 11.54 percent. Dealers took down 23.7 percent of the auction, the lowest since at least 2009.
The Fed’s statement Wednesday prompted the biggest jump in two-year Treasury yields since March.
“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2 percent inflation,” Fed officials wrote Wednesday.
The Fed’s explicit mention of its December meeting has bond investors scrutinizing U.S. economic data even more closely than before.
"All eyes are on next Friday’s jobs report," said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., one of 22 primary dealers that trade directly with the Fed, referring to the Labor Department’s October payroll survey. “The selloff momentum may have a little bit more room to go."