Treasuries Hold Decline Before Unemployment Data, Leading Index
Treasuries held a decline that took 10-year yields to an almost two week-high before data that analysts said will show the number of new unemployment benefit claimants fell and a gauge of leading indicators rose.
Benchmark note yields had their biggest gain in four weeks yesterday after the Federal Reserve said it will trim stimulus to $75 billion of monthly bond purchases from $85 billion. Losses were limited as the Fed said its benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” its 2 percent goal. The U.S. will sell $45 billion of notes today.
“Yields are going to react to data,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “The market didn’t react very strongly to the taper because we knew it was coming.”
Treasury 10-year yields rose one basis point, or 0.01 percentage point, to 2.91 percent at 7:27 a.m. New York time, according to Bloomberg Bond Trader data. The 2.75 percent note due in November 2023 fell 1/8, or $1.25 per $1,000 face amount, to 98 21/32. The rate jumped six basis points yesterday, the biggest increase since Nov. 20.
U.S. government debt lost 2.8 percent this year through yesterday, according to Bloomberg World Bond Indexes.
Policy makers have kept their target for the federal funds rate on overnight loans between banks at almost zero for five years. The odds of an increase by December 2014 are about 13 percent, according to data compiled by Bloomberg based on futures contracts.
“Yields are getting near attractive levels,” said Peter Jolly, head of market research at National Australia Bank Ltd. in Sydney. “The fed funds rate is going to stay low for a very long time. The outlook for inflation remains benign.”
Initial jobless claims fell to 335,000 last week from 368,000 the previous week, according to a Bloomberg survey of economists before today’s Labor Department report. An index of leading economic indicators rose 0.7 percent in November, after gaining 0.2 percent the prior month, a separate survey showed.
The U.S. plans to sell $29 billion of seven-year notes and $16 billion of five-year Treasury Inflation Protected Securities today in the last of four note auctions this week.
The seven-year notes scheduled for sale today yielded 2.32 percent in pre-auction trading, compared with 2.106 percent at the previous sale on Nov. 27.
At that auction, investors bid for 2.36 times the amount of debt offered, the lowest bid-to-cover ratio since May 2009. The prior five-year TIPS sale in August drew bids for 2.2 times the amount available, matching the lowest level since October 2008.
Trading volume yesterday at ICAP Plc, the largest inter-dealer broker of U.S. government debt, climbed 80 percent to $449.7 billion yesterday, the highest level since Nov. 20. The 2013 average is $312.1 billion.
To contact the reporter on this story: Neal Armstrong in London at firstname.lastname@example.org