Treasuries Gain After U.S. Confidence Drops More Than Forecast

Treasuries rose, with 10-year note yields trading in the narrowest range in two weeks, after U.S. consumer confidence slid more than forecast and home sales fell.

Bonds pared gains as demand at a U.S. auction of $35 billion of two-year notes slid to the lowest level since 2011. Treasuries declined earlier as residential real-estate prices climbed in January by the most since June 2006. U.S. government securities rose yesterday after Cyprus won a European Union-led bailout that imposes losses on bondholders.

“The crosscurrents for risk are poor right now,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of the 21 primary dealers that trade with the Federal Reserve. “The Europe story is still not resolved. U.S. data have been mixed. It doesn’t impart a lot of direction.”

The 10-year note yield declined one basis point, or 0.01 percentage point, to 1.91 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices, after rising earlier to 1.94 percent. It touched 1.97 percent yesterday, the highest since March 15, and then fell to 1.89 percent, the lowest since March 19. The price of the 2 percent debt due in February 2023 rose 3/32, or 94 cents per $1,000 face amount, to 100 26/32.

The benchmark yield stayed within a 4.3 basis-point range today, the narrowest since March 11. It has traded since March 18 between 1.89 percent and 1.97 percent.

Yields on current two-year notes were little changed at

0.25 percent.

Lower Volume

Trading volume fell 8 percent to $233 billion, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. It touched a one-week high of $354 billion on March 19. Average daily volume for the past year is $247 billion.

U.S. debt was supported by month-end buying to match market indexes. Funds that manage portfolios against benchmark indexes, including the Barclays U.S. Aggregate Index, typically buy longer-maturity Treasuries near month-end to align the interest-rate sensitivity of their holdings with the indexes.

The Barclays index, which many funds use to measure their performance, will extend its duration, the measure of rate-sensitivity, by 0.10 year on April 1, compared with 0.11 year on March 1.

The two-year notes auctioned today drew a yield of 0.255 percent, compared with a forecast of 0.256 percent in a Bloomberg News survey of seven primary dealers. That compared with a yield of 0.257 at last month’s sale.

Demand Gauge

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 3.27, the least since July 2011. The ratio averaged 3.79 at the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 20.6 percent of the notes, compared with an average of 27.1 percent for the past 10 sales. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 21.8 percent, the least since September. The average at the past 10 sales was 21.2 percent.

Primary dealers purchased 57.6 percent of the notes, the most since August.

The U.S. plans to sell $35 billion of five-year notes tomorrow and $29 billion of seven-year debt on March 28.

Investors in Treasuries cut bullish bets and increased shorts, or bets that the securities will decline in value, in the week ending yesterday, according to JPMorgan Chase & Co.

The proportion of net shorts was at 18 percentage points, according to a JPMorgan survey, up from 12 percentage points the week ending March 18. The percent of outright shorts rose to 28 percent, from 27 percent, while the percent of outright longs dropped to 10 percent from 15 percent.

Confidence Sags

Treasuries erased losses today after the Conference Board’s confidence index declined to 59.7 from a revised three-month high of 68 in February. Economists surveyed by Bloomberg projected the March measure would fall to 67.5. Sales of newly built homes fell 4.6 percent to a 411,000 annualized pace, Commerce Department data showed.

“Treasuries are getting tight right now,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “Yields are compressing. People are not selling.”

Yields rose earlier as Commerce Department data showed bookings for goods meant to last at least three years rose 5.7 percent, the most since September.

The economy “is still moving along in the right direction,” said Tom Simons, an economist in New York at the primary dealer Jefferies LLC. “The pace of progress is somewhat modest.”

The Standard & Poor’s/Case-Shiller index of property values in 20 cities climbed 8.1 percent in January from the same month in 2012, after rising 6.8 percent in the year ended in December, the group said today in New York.

Cyprus Deal

Treasury 10-year note yields fell to 1.89 percent yesterday on concern a 10 billion-euro ($13 billion) bailout of Cyprus may undermine long-term financial stability in the euro region.

The nation agreed to shut its second-biggest bank, largely wiping out bondholders and raising concern the restructuring will pave the way for losses on deposits in other European nations.

The rescue isn’t a model for future aid plans, European Central Bank Governing Council Member Ewald Nowotny told reporters in Prague today.

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