Treasury 10-Year Yields at Almost at 4-Week Low on Data

Treasury 10-year note yields traded at almost a four-week low after a measure of manufacturing in the U.S. last month was weaker than forecast, increasing demand for safer assets.

U.S. 10-year yields dropped as the Institute for Supply Management’s factory index fell to 51.3 in March from 54.2 a month earlier, the Tempe, Arizona-based group said. Employers may have hired 195,000 workers in March, after a gain of 236,000 in February, according to another report due April 5. The Federal Reserve purchased $3.18 billion in notes today as part of its program to strengthen the economy.

“The market is concerned about the spring-time swoon,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “You get one weak number and the market is like, ‘the bad times are coming back.’ We’ll remain closer to the bottom of the range until we get Friday’s number.”

U.S. 10-year yields declined two basis points, or 0.02 percentage point, to 1.83 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 1.8297 percent, almost the lowest since March 4. The price of the 2 percent note due in February 2023 gained 5/32, or $1.56 per $1,000 face value, to 101 1/2.

Treasury 30-year bonds lost 3.1 percent in the first quarter, versus a 0.3 percent loss for the broader market, according to Bank of America Merrill Lynch indexes.

ISM Levels

Treasuries due in a decade or more have been trading at almost the cheapest level in 19 months relative to global peers with comparable maturities, according to Bank of America Merrill Lynch bond indexes. Yields on the Treasuries reached 57 basis points higher than those in an index of other sovereign debt on March 25, the most since August 2011, the data showed. The spread was 56 basis points on March 28.

U.S. government securities underperformed the Standard & Poor’s 500 Index in March as Fed efforts to spur the economy boosted stocks. Government bonds returned 0.1 percent through March 28, according to a Bank of America Merrill Lynch index, versus a return by the stock index of 3.75 percent including reinvested dividends. The S&P 500 rose to a record on March 28, wiping out losses from the financial crisis, and the Dow Jones Industrial Index climbed to its highest ever.

Economists projected an ISM index reading of 54 for gauge, according to the median forecast in a Bloomberg survey, with estimates ranging from 51.6 to 55. Figures higher than 50 signal expansion.

Widening Spread

Treasury 10-year yields climbed March 8 to 2.08 percent, the highest since April 5, after the Labor Department reported February’s employment increase and a drop in the unemployment rate, to 7.7 percent from 7.9 percent.

“The market will be focused on the job front to force higher rates,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The economic data has been showing some good signs recently.”

Personal spending rose 0.7 percent in February, after a 0.4 percent increase in January, the Commerce Department reported March 29, when the Treasuries market was closed for Good Friday.

Investors last week demanded the highest yield premium to own 30-year bonds instead of 10-year notes in 18 months. The spread widened to as much as 1.26 percentage points, and it was 1.25 percentage points today.

The last time the difference was so wide was September 2011. The gap contracted on Sept. 21 of that year when the Federal Reserve announced Operation Twist to buy longer-term Treasuries and sell shorter-term debt from its holdings to put downward pressure on borrowing costs.

Debt Holdings

While that program has expired, the Fed is currently purchasing $85 billion of Treasury and mortgage debt a month as it seeks to support the economy by capping yields. It purchased securities today maturing between May 2020 to February 2023.

The Fed’s measure of traders’ forecasts for costs in the economy for the period from 2018 to 2023, known as the five-year five-year forward break-even rate, was 2.72 percent. The average for the past decade is 2.75 percent.

International investors bought more Treasuries last quarter than any other start to a year since 2009, with holdings approaching $3 trillion.

The Fed’s holdings of U.S. government debt on behalf of foreign central banks rose $63.5 billion, or 2.4 percent, to $2.95 trillion as of March 27, according to the central bank. China, the largest foreign lender to the U.S., has been buying Treasuries at the fastest pace since 2011.

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