U.S. 30-Year Bond Yield at Almost One-Month High Before Auction

Treasury 30-year bond yields traded at almost a one-month high before the U.S. sells $16 billion of the debt today amid speculation yields at about 3 percent and falling inflation expectations may attract investors.

The securities were little changed, erasing gains after a report showed U.S. initial claims for unemployment insurance unexpectedly fell last week. The benchmark 10-year yield jumped on May 3 after a U.S. Labor Department report showed employers hired more workers in April than economists predicted. Federal Reserve Bank of Chicago President Charles Evans said the U.S. job market is “doing better” with record policy stimulus.

“The interest in long-dated paper north of 3 percent may be enough to peak people’s interest,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “If it slides to higher yields, it will be received decently. A lot will depend on if it’s north of 3 percent.”

The U.S. 30-year yield fell one basis point, or 0.01 percentage point, to 2.98 percent at 11:37 a.m. New York time, according to Bloomberg Bond Trader prices. The 3.125 percent bond due in February 2043 traded gained 5/32, or $1.56 per $1,000 face amount to 102 27/32. The yield fell as much as three basis points and rose to 3.02 percent yesterday, the highest since April 4.

The yield on the May 2023 securities sold yesterday dropped one basis point to 1.80 percent.

Auction Stats

The 30-year bonds being sold today yielded 3 percent in pre-auction trading, versus 2.998 percent at a sale of the securities on April 11.

“In the wake of the employment report, the market has priced in a reasonable concession for supply,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

This week’s sales will raise $12.4 billion of new cash, as maturing securities held by the public total $59.6 billion, according to the Treasury.

Today’s auction is the last of three U.S. sales of coupon-bearing debt this week. The government auctioned $24 billion of 10-year notes yesterday and $32 billion of three-year debt on May 7.

Yesterday’s 10-year auction drew orders to buy worth 2.70 times the amount of securities sold, compared with an average of 2.92 for the previous 10 sales.

Bidding for the three-year notes amounted to 3.38 times the amount available. The average for the prior 10 auctions was 3.57.

Yield Forecast

The yield on the 10-year note is forecast to end the year at 2.20 percent, according to the median estimates of economists in a Bloomberg News survey May 3 to 8. The figure is down from a forecast of 2.25 percent in a Bloomberg News survey conducted April 5 to April 9. Thirty-year bonds may yield 3.25 percent at the end of the year, compared with a forecast for 3.37 percent in the previous survey.

Treasuries slid earlier in the month after a U.S. Labor Department report on May 3 showed the unemployment rate unexpectedly fell to a four-year low of 7.5 percent.

The U.S. economy is gradually improving as the Fed pursues its accommodative policies.

“The labor market has improved,” Fed Bank of Chicago’s Evans said, speaking today in an interview with Michael McKee on Bloomberg Television. “I’d like to have confidence that we can sustain that improvement in the labor market through the summer.”

Jobs Data

Applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008, Labor Department figures showed today. Economists forecast 335,000 claims, according to the median estimate in a Bloomberg survey. The average during the past month was the lowest since before the last recession began.

Fed Bank of Philadelphia President Charles Plosser said it is “disturbing” to him that “more and more is being expected of central banks.”

“Our fiscal authorities are not doing a very good job in any country,” Plosser said in an interview on Bloomberg television today.

The Fed is buying $85 billion of Treasury and mortgage debt each month to support the economy by putting downward pressure on borrowing costs. It purchased $1.4 billion of TIPS maturing between April 2018 and February 2043 today, according to the Fed Bank of New York’s website.

Bond Returns

The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a measure of trader expectations for consumer prices over the life of the debt, fell to as low as 2.24 percentage points today, the least since September. The five-year average is 2.03 percentage points.

U.S. government securities have returned 0.4 percent in 2013, according to Bank of America Merrill Lynch indexes, even as equities have surged, as the Fed’s debt purchases kept borrowing costs under pressure. They declined 0.4 percent this month, while thirty-year bonds dropped 1.7 percent.

The rate compares with the dividend yield of 2.04 percent on the Standard & Poor’s 500 Index. The equities gauge rose 15 percent this year when reinvested dividends are included.

Before it's here, it's on the Bloomberg Terminal.