Treasuries Trade in Narrowest Range Since 2007 on Ukraine, DataDaniel Kruger
The 10-year Treasury note traded within the narrowest monthly range since April 2007 as unrest in Ukraine and debate about weather-affected economic data dissuaded investors from pushing yields higher.
Benchmark yields fell to a three-month low as reports showed job growth, retail sales and housing starts were all lower than forecast amid bets winter weather affected data as another storm was set to pound the U.S. Investors sought safety in Treasuries as Ukraine’s acting president accused Russia of invading Crimea. The U.S. is forecast to add fewer a jobs in February than the 2013 monthly average when the Labor Department releases the data March 7.
“We just keep marking time because there isn’t any clear information about where the game, as far as the economy goes, is going to be,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “When the weather does break, you’re going to see an awful big and awful quick snapback.”
Benchmark 10-year yields were little changed at 2.65 percent last month in New York, Bloomberg Bond Trader data show. The yield fell as low as 2.568 percent on Feb. 3, the least since Nov. 1, and traded as high as 2.784 percent on Feb. 12.
The 10-year note traded within a 21.8 basis point range throughout February, the smallest range since April 2007, when 16.9 basis points separated the high and the low levels for the security, according to Bloomberg data.
Treasury volatility as measured by the Bank of America Merrill Lynch MOVE index was 58.14, at almost a nine-month low and down from 73.55 at the end of 2013. It has averaged 71.88 over the past year.
The difference in yields on 10-year notes and inflation-protected debt, known as the break-even rate, widened widened by 0.02 percentage point to 2.18 percentage points, the most since Feb. 13, after a separate report showed a pickup in consumer spending even as the economy grew at a slower-than-predicted pace in the last three months of 2013.
Yields on benchmark 10-year notes touched a three-week low of 2.63 percent on Feb. 27 as investors sought a haven in the world’s biggest and most easily traded securities market as the unrest in the Ukraine worsened.
“The Russian Federation started a naked aggression against our country,” Ukraine Acting President Oleksandr Turchynov said in a speech broadcast by the parliamentary television channel. President Barack Obama said at the White House he was “deeply concerned” by Russia’s military movements.
The Ukraine situation “panicked the market a little bit,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.
The U.S. added 150,000 jobs in February, versus the 2013 average of 193,500, the median forecast of 53 economists in a Bloomberg News survey showed. That would follow a gain of 113,000 jobs in January, after a revised 75,000 increase in December, the least since January 2011. Economists in a Bloomberg survey projected an advance of 180,000 last month.
Retail sales decreased 0.4 percent last month as winter weather kept consumers away from auto showrooms and stores, after a revised 0.1 percent decline the prior month, the Commerce Department said Feb. 13. Economists surveyed by Bloomberg projected no change.
The department said Feb. 19 that housing starts fell 16 percent to an 888,000 annualized rate following December’s revised 1.05 million. The decrease was the biggest since February 2011. Economists surveyed by Bloomberg called for 950,000.
“It’s the persistence of the data” that has kept yields low, said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut.
U.S. gross domestic product grew at a 2.4 percent annualized rate from October through December, compared with the 3.2 percent gain issued last month, revised figures from the Commerce Department showed yesterday. The median forecast of 85 economists surveyed by Bloomberg called for a 2.5 percent increase.
The data also showed that while price pressures remained muted, they were less subdued than previously estimated. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.3 percent annualized pace compared with a 1.1 percent rise prior estimate. The gauge climbed at a 1.4 percent pace in the third quarter.
Absent the flight to quality, “the gravitational pull would be to slightly higher yields,” said Michael Materasso, senior portfolio manager and co-chairman of the fixed-income policy committee at Franklin Templeton Investments in New York. The firm oversees more than $320 billion of bonds. “As we move into the spring, we should see a snapback in economic growth.”