Treasuries Advance Before Bernanke’s Address in Jackson Hole
Treasuries rose as investors speculated that Federal Reserve Chairman Ben S. Bernanke won’t signal additional steps to support the economy, encouraging demand for a refuge.
Yields on benchmark 10-year notes pared their biggest weekly gain in almost two months before Bernanke’s address today in Jackson Hole, Wyoming. A gauge of government debt volatility rose yesterday to the highest level in two weeks.
“It could be an extremely volatile trading day for the Treasuries market,” said Kornelius Purps, a strategist at UniCredit SpA in Munich. “There is a big likelihood of the baseline scenario that Bernanke will not deliver anything concrete, but nevertheless I think that this will lead to some disappointment in the market and an increase in yields.”
Yields on 10-year notes fell four basis points, or 0.04 percentage point, to 2.19 percent at 7:41 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 gained 3/8, or $3.75 per $1,000 face amount, to 99 14/32.
The 10-year note yields have climbed this week 14 basis points, the most since the period ended July 1, after touching a record low 1.97 percent on Aug. 18. The yields may jump by as much as 15 basis points after Bernanke’s speech if no new measures are announced, according to Purps.
Bank of America Merrill Lynch’s MOVE index, which measures price swings in Treasuries based on prices of over-the-counter options maturing in two- to 30 years, increased yesterday to 107.70, the highest level since Aug. 12.
The nation’s gross domestic product grew at a 1.1 percent annual pace in the second quarter, down from the 1.3 percent rate that the government estimated last month, according to the median forecast of 81 economists in a Bloomberg News survey before today’s Commerce Department report.
Bernanke used his Jackson Hole speech last August to announce the Fed would “do all that it can” to spur the economic recovery. Two months later, policy makers announced a $600 billion second round of debt purchases to support the economy, a program that ended in June.
The Stoxx Europe 600 Index trimmed its weekly advance, dropping 0.8 percent today. Futures on the Standard & Poor’s 500 Index expiring in September were little changed.
“The market has pared back its expectations of additional purchases to some extent,” Ajay Rajadhyaksha and Dean Maki, analysts at Barclays Plc in New York, wrote in a report yesterday. “However, there is still scope for disappointment.” The company is one of the 20 primary dealers authorized to trade directly with the Fed.
U.S. government securities have returned 2.7 percent in August in their best monthly performance since the depths of the financial crisis in December 2008, according to a Bank of America Merrill Lynch index. Investors sought the security of debt while stocks tumbled, sending the MSCI All Country World Index of shares down 12 percent.
Yields on two-year notes were little changed at 0.20 percent today after plunging to a record low 0.1568 percent on Aug. 9, when the Fed announced that it planned to keep its target rate for overnight lending between banks at a record low until at least through the middle of 2013.
“We’re living in a world of low interest rates,” said Hans Goetti, the Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, the Zurich-based money manager that oversees the equivalent of $1.77 billion. “I don’t see any bright spark at the moment that would justify much higher rates.” Ten-year note yields may drop to 1.5 percent in the coming months, Goetti said.
Yields will rise to 2.74 percent by year-end, according to the average forecast in a Bloomberg News survey of financial companies, with the most recent forecasts given the heaviest weightings.
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