Treasury 10-Year Yield Rises to 2% 1st Time Since April

Treasury 10-year note yields touched 2 percent for the first time since April as higher-than-forecast orders for durable goods in the U.S. added to signs the economic recovery may be strengthening.

The benchmark yield pared gains as investors saw a buying opportunity before Federal Reserve officials start a two-day meeting tomorrow. Fitch Ratings said the temporary suspension of the U.S. debt limit removes the near-term risk to the nation’s AAA credit rating. The U.S. sold $35 billion in two-year notes, the first of three auctions this week totaling $99 billion.

“We’ve had a decent selloff, but at these levels investors are finding value,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of the 21 primary dealers required to bid at government-debt auctions. “The Fed is still buying and we are not out of the woods economically. We may weaken further, but we will need more news for an extended sell-off.”

Ten-year note yields rose one basis point, or 0.01 percentage point, to 1.96 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. It earlier touched 2 percent for the first time since April 25. The price of the 1.625 percent security due in November 2022 fell 3/32, or 94 cents per $1,000 face value, to 97. The yield’s average over the past decade is 3.64 percent.

The current two-year note was little changed at 0.27 percent.

‘More Stability’

“The data show there’s more stability -- more people are looking for value away from Treasuries,” said Sean Murphy, a trader at primary dealer Societe Generale SA in New York. “You are not out of the woods yet, but it’s a better atmosphere and it should promote better sellers of strength.”

U.S. government debt extended losses as orders for durable goods in the U.S. rose 4.6 percent in December after a 0.7 percent gain the prior month, a Commerce Department report showed in Washington. The median forecast of 76 economists surveyed by Bloomberg called for a 2 percent gain in overall orders.

Employers added 161,000 workers in January, after a 155,000 increase in December, a separate survey showed before the Feb. 1 report from the Labor Department. Other data this week may show manufacturing is stabilizing and consumer spending increased, based on responses from economists.

Fed policy makers said they may end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid- or end-of-year finish, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering.

‘Keep Jumping’

“The Treasury market is trading like a beach ball -- you just can’t hold rates down, they keep jumping back up,” said William O’Donnell, head U.S. government-bond strategist in Stamford, Connecticut, at Royal Bank of Scotland Group PLC’s RBS Securities unit, a primary dealer. “There is a lot of resistance lining up about 2 percent, at 2.09/10 area. A lot of bearish channels and trend lines come in there -- that’s why we’ve been sporting this 1.7-to-2.1 range.”

Resistance is an area on a price graph where analysts anticipate sell orders to be clustered.

RBS forecasts the 10-year yield to decline to 1.90 percent by end of 2013. The yield will rise to 2.25 percent at year-end, according to the weighted average forecast of 76 economists in a Bloomberg survey.

Notes Auction

The two-year securities sold today drew a yield of 0.288 percent, compared with the average forecast of 0.289 percent in a Bloomberg News survey of eight of the Fed’s primary dealers. The record low was 0.22 percent at July’s auction.

The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.77, versus 3.59 last month and an average of 3.82 at the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 18 percent of the notes, compared with an average of 29.8 percent at the past 10 sales. Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 30 percent of the notes, versus the 10-auction average of 18 percent.

Treasuries have handed investors a 0.9 percent loss in January, the worst monthly performance since March, according to Bank of America Merrill Lynch Indexes. The MSCI All-Country World Index of shares gained 5.4 percent in January including reinvested dividends, according to data compiled by Bloomberg.

The difference between yields on U.S. 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.56 percentage points last week. The average over the past decade is 2.19 percentage points.

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