U.S. 10-Year Note at 10-Month High as Treasury Plans Sale

Treasury 10-year note yields fell after reaching almost the highest level since April as the government announced plans to sell $72 billion of notes and bonds next week.

The Treasury called on Congress to pass a longer-term increase to the U.S. debt limit as it said the government will sell its first issue of floating-rate notes within the next year. The 10-year note yield straddled 2 percent for a sixth day. Federal Reserve bond purchases will reach $1.14 trillion before the current stimulus program expires in the first quarter of 2014, according to the median estimate of 44 economists in a Bloomberg survey.

“Two percent is an important pivot point in the market right now,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “There is concern about the sequester and what’s going on in D.C. We also have buybacks almost every day this month, which continue to support Treasuries.”

The 10-year yield fell four basis points, or 0.04 percentage point, to 1.96 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. It rose earlier to

2.01 percent. The yield reached 2.06 on Feb. 4, the most since April 12. The 1.625 percent security maturing in November 2022 rose 10/32, or $3.13 per $1,000 face value, to 97 1/32.

Thirty-year bond yields decreased four basis points to 3.17 percent.

Price Swings

Treasury market volatility rose as measured by the Bank of America Merrill Lynch MOVE index rose to 64.8 yesterday from

63.1. The measure has climbed from 53.6 on Jan. 23, and since Jan. 25 has held above 59.7, the average since the Fed announced its $40 billion a month mortgage purchase plan of Sept. 13.

The selloff that has driven Treasury 10-year notes to their worst yearly start since 2009 is poised to reverse, according to Bank of America Corp., citing analysis of trading patterns.

The 10-year yield reached beyond 2.05 percent two days ago while failing to move higher, instead falling on a 10-minute chart, signaling the start of a so-called five-wave move, according to MacNeil Curry, chief rates and currencies technical strategist in New York at the firm’s Bank of America Merrill Lynch unit. In Elliott Wave analysis, that pattern signals price direction may be about to change. A declined through 1.93 percent on the benchmark note yield would confirm the bullish trend, Curry said.

Debt Issues

Treasury’s debt-limit-increase request follows President Barack Obama on Feb. 4 signing legislation temporarily suspending the $16.4 trillion debt limit until May 18.

“We plan to issue a final rule on floating-rate notes in the coming months, with the first floating-rate-note auction still expected to occur within the next year,” the Treasury announced in a statement in Washington today. The statement also said it expects to gradually increase the issuance of Treasury Inflation Protected Securities in 2013.

“The only really surprising thing was the gradual” increase in TIPS issuance, said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of 21 primary dealers that trade with the Fed. “I think a lot of the market was expecting more significant increases.”

The U.S. will also sell $32 billion in three-year notes on Feb. 12, $24 billion in 10-year notes on Feb. 13, and $16 billion in 30-year bonds on Feb. 14.

Refunding Plans

The Treasury has kept its so-called quarterly refunding auctions unchanged at $72 billion since November 2010. Given the government’s financing needs, it sells three-, 10- and 30-year securities each month in addition to its historical quarterly offerings.

Thirty-year Treasuries have handed investors a 5.2 percent loss in 2013 through yesterday, according to Bank of America Merrill Lynch indexes. January’s decline of 4.3 percent was the biggest since March 2012, the data show. The securities gained

2.5 percent last year.

The Fed’s price indicator for the period from 2018 to 2023, known as the five-year five-year forward break-even rate, climbed to 2.93 percent last week, the most since August 2011.

The broad Treasury market is down 1.1 percent this year through yesterday, according to Bank of America figures. The MSCI All-Country World Index of shares jumped 4.6 percent including reinvested dividends.

The Fed said Jan. 30 it’s committed to buying about $85 billion of government and mortgage securities a month as long as the jobless rate stays above 6.5 percent and inflation is below

2.5 percent. Unemployment rose to 7.9 percent in January and consumer-price gains remain below the central bank’s target. The U.S. economy contracted 0.1 percent in the fourth quarter.

The central bank bought $3.65 billion of Treasuries maturing from November 2018 to January 2020 today.

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