Treasuries Rise as Debt-Ceiling Concern Revives Haven Bid

Treasuries rose, with 10-year yields falling from the highest level in a week, as speculation U.S. lawmakers will fail to reach agreement on raising the nation’s debt ceiling revived demand for the safest securities.

Benchmark notes briefly pared gains on a report the House will pass a three-month debt-limit increase next month, only to extend them once more after Speaker John Boehner said a budget that cuts spending must be passed before any long-term deal is reached. The Federal Reserve purchased $1.565 billion of bonds maturing from February 2036 to November 2042 amid its struggle to restore growth in the world’s largest economy.

“We have to wait to see what happens with the debt ceiling before the market goes anywhere,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “At 1.8 to 1.85 percent, we are roughly unchanged on the year.”

The 10-year note yield fell four basis points, or 0.04 percentage point, to 1.84 percent at 5 p.m. in New York, according to Bloomberg Bond Trader pricing. The 1.625 percent security due in November 2022 gained 11/32, or $3.44 per $1,000 face amount, to 98 2/32. The yield earlier increased to 1.89 percent, the highest level since Jan. 11.

The Treasuries market will be closed Monday in observation of the Martin Luther King Jr. holiday.

Futures Bets

Hedge-fund managers and other large speculators decreased their net-long position in 10-year note futures in the week ending Jan. 15 to the least since August, when they were net short, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 27,298 contracts on the Chicago Board of Trade. Net-long positions this week fell by 17,508 contracts, or 39 percent, from a week earlier, the Washington-based commission said in its Commitments of Traders report.

Large speculators decreased their net-short bets on 30-year bonds, with speculative short positions, or bets prices will fall, outnumbering long positions by 5,373 contracts. Net-short positions fell by 2,076 contracts, or 28 percent, from a week earlier.

On the two-year note, long positions outnumbered short positions by 123,850 contracts, falling by 5,770 contracts, or 4 percent, from a week earlier.

Debt Ceiling

The House will “obligate” the Senate to cut spending, Boehner said today as House Republicans set a vote for next week on a three-month extension of U.S. borrowing authority.

“The Democratic-controlled Senate has failed to pass a budget for four years,” said Boehner, an Ohio Republican. “That is a shameful run that needs to end this year.”

The nation reached its $16.4 trillion debt ceiling in December and has since been paying its bills through “extraordinary” measures. next month. It will lack sufficient funds to pay all its bills as early as Feb. 15, according to the Washington-based Bipartisan Policy Center.

Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department, which noted the U.S. has never defaulted on its obligations.

“They still want to fight it out,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “A series of temporary measures may continue. This is going to continue for a while and it will keep us in a range -- 1.8 to 1.9 percent.”

Sentiment Falls

U.S. government debt remained higher as the Thomson Reuters/University of Michigan consumer sentiment index dropped to 71.3 in January, the lowest since December 2011, from a five-month low of 72.9 the prior month. Analysts forecast the measure of U.S. consumer confidence would advance to 75 this month, according to a Bloomberg survey.

The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, yesterday touched minus 0.71 percent, the least costly since Jan. 10. It was negative 0.74 percent today after reaching negative 0.77 percent on Jan. 16, the most costly since Jan. 1. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

Treasuries handed investors a 0.4 loss in the month ended yesterday, while bonds in an index of sovereign debt around the world declined 0.1 percent, according to Bank of America Merrill Lynch data.

The Fed purchased Treasuries today as part of its monthly $85 billion in government and mortgage-debt purchases designed to stimulate the economy.

The Federal Open Market Committee has pushed the main interest rate close to zero and expanded Fed assets to a record $2.97 trillion to fuel growth and reduce 7.8 percent unemployment. Policy makers debating whether to continue stimulus this year will next meet Jan. 29-30.