U.S. 10-Year Yields Post Biggest Weekly Decline Since Nov

Treasury 10-year yields posted their biggest weekly drop since November as efforts to trim the European Union budget added to concern the region’s economy will struggle to expand, boosting demand for safer assets.

U.S. debt was little changed after gaining earlier today as German exports grew less than forecast in December, a report showed. Treasuries declined briefly after a report showed the U.S. trade deficit narrowed more than forecast in December, which may indicate the economy expanded last quarter.

“The market is centered around the 2 percent level,” Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “We’re towards the low side of that pivot point. The concerns over Europe have taken the market up and seem to be the main driver of yields.”

The benchmark 10-year yield was little changed at 1.95 percent at 4:45 p.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 traded at 97 4/32.

The yield last touched 2 percent on Feb. 6 and reached 1.92 percent on Feb. 1, the least since Jan. 25. It fell seven basis points this week, the most since the week ended Nov. 24.

Price Swings

Hedge-fund managers and other large speculators increased their net-long position in 10-year note futures in the week ending Feb. 5, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, gained 10 percent to 46,906 contracts on the Chicago Board of Trade.

Traders increased bets on declines in 30-year bond futures by 37 percent to the most since March, while trimming net long positions 24 percent on five-year note futures, the data show.

Volatility in Treasuries dropped to the lowest since Jan. 24. Bank of America Merrill Lynch’s MOVE index, which measures price swings of U.S. government securities based on options, was 59.9 basis points yesterday after rising to 66.4 basis points on Jan. 30, the most since Nov. 6.

The Federal Reserve bought $1.4 billion in inflation-indexed debt due from April 2029 to February 2042 as part of its so-called quantitative easing program to lower borrowing costs and strengthen economic growth.

Debt Auctions

The Treasury kept next week’s so-called quarterly refunding auctions at $72 billion, the amount sold 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.

The U.S. will 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.

“I don’t think people want to set shorts too early in front of the supply, but it weighs on their psychology a little bit,” said Guy Haselmann, an interest-rate strategist at Bank of Nova Scotia in New York, one of 21 primary dealers that trade with the Fed. “Markets have a tendency to trade a little heavy in front of that supply.” A short position is a bet that an asset will decline in value.

European Union leaders agreed to a seven-year budget that cuts spending for the first time, bowing to U.K. Prime Minister David Cameron’s insistence on thrift. The deal, struck after 25 1/2 hours of talks in Brussels, set the budget for 2014-2020 at 960 billion euros ($1.3 trillion), down from an original proposal of 1.047 trillion euros and less than the 994 billion euros spent in the current budget cycle.

German Economy

Germany’s exports gained 0.3 percent from November, when they fell 2.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 1.4 percent increase, according to the median of 15 estimates in a Bloomberg News survey.

The U.S. trade gap shrank 20.7 percent to $38.5 billion, lower than any estimate in a Bloomberg survey of 73 economists and the least since January 2010, Commerce Department figures showed today in Washington. The jump in fuel sales to overseas buyers, combined with purchases of the fewest barrels of imported crude in almost 16 years, led to the smallest petroleum deficit since August 2009.

“The trade number was not favorable to Treasuries because it will add to gross domestic product,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “It’s probably a combination of the Dow flirting with 14,000, the trade number was favorable for the economy and the markets are on the thin side because a lot of people are out.”

A Commerce Department report on Jan. 30 showed the economy shrank at a 0.1 percent annual rate in the final three months of the year. The trade figures probably mean the economy managed to eke out a gain when revised data are released on Feb 28.

U.S. sovereign debt has returned 0.2 percent this month, according to a Bank of America Merrill Lynch index. It handed investors a 1 percent loss in January, the worst start to a year since 2009 on signs the U.S. economy is improving.

You might like: