Treasuries Rise as Durable Goods Report Spurs Investment Concern

Treasuries rose, with 10-year note yields falling for the first time in three days, as a report on orders for durable goods indicated business investment may lag behind projections.

U.S. debt erased a weekly loss even as bookings for non-military capital goods excluding aircraft climbed 1.4 percent in June after a 1.2 percent decrease in May that was previously reported as a 0.7 percent gain, data from the Commerce Department showed. Five-year yields were set for the highest closing level versus two-and 10-year notes since 2009, indicating a drop in demand for the middle security over the other two.

“While the headline was constructive, the details suggested downward revisions to second-quarter” economic growth estimates, said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “That weighed in.”

The U.S. 10-year yield fell four basis points, or 0.04 percentage point, to 2.47 percent at 5 p.m. New York time, after jumping four basis points yesterday, according to Bloomberg Bond Trader prices. The price of the 2.5 percent note due May 2024 added 10/32, or $3.13 per $1,000 face amount, to 100 9/32. The yield fell to 2.44 percent on July 17, the least since May 29. The yield dropped two basis points on the week.

Debt Returns

The amount of Treasuries traded through Icap Plc, the largest inter-dealer broker of U.S. government debt, dropped to $214 billion, from $283 billion yesterday. The daily average volume this year is $326 billion.

Treasuries returned 3.3 percent this year through yesterday, according to Bloomberg World Bond Indexes, the most over the equivalent period in four years.

Hedge-fund managers and other large speculators raised bets on gains in five-year notes in the week ending July 22 to the highest level in a year, according to U.S. Commodity Futures Trading Commission data. Speculative net-long positions, or bets prices will rise, reached 51,735 contracts, from 4,715 the week before.

The gap between five-year notes and 30-year bonds, known as the yield curve, fell to 156 basis points, the least since February 2009. A yield curve is a chart showing rates on debt of different maturities.

Deb t Sales

The Treasury will auction $108 billion in notes next week. It will sell $29 billion in two-year securities on July 28, $35 billion in five-year debt the following day and $29 billion in seven-years on July 30. It will also auction $15 billion in two-year floating-rate notes on July 30.

Orders for U.S. business equipment rose in June following a revised drop the prior month, indicating corporate investment remains stop-and-go and may hold back economic growth. Demand for all durable goods -- items meant to last at least three years -- increased 0.7 percent, exceeding the forecast of 0.5 percent.

“As the data has come in over the last couple of weeks, there will be a rebound, but not quite as strong as originally anticipated,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 22 primary dealers that trade with the Fed. “The price action is reflective of these declining expectations.”

Traders saw about a 47 percent chance that the central bank will have raised its goal for overnight lending between banks to at least 0.5 percent by June as of yesterday, compared with 45 percent odds the previous day, based on futures contracts. The Fed has kept its target in a range of zero to 0.25 percent since December 2008.

Butterfly Spread

The so-called 2-5-10 butterfly spread reached 41 basis points, climbing from a negative level on a closing basis as recently as February.

“The market seems to be pricing in expectations of sluggish growth for many years to come,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

A report yesterday showed jobless claims fell by 19,000 to 284,000 in the week ended July 19, the fewest since February 2006 and lower than any economist surveyed by Bloomberg News forecast, a Labor Department report showed yesterday.

The consumer price index increased 0.3 percent in June after a 0.4 percent gain the prior month, official data showed earlier this week.

The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.27 percentage points. The average for the past decade is 2.20.

Israel and Hamas are considering a U.S.-backed proposal for a temporary cease-fire as the conflict in the Gaza Strip intensified and spurred major Palestinian protests in the West Bank and east Jerusalem. Russia’s central bank unexpectedly increased borrowing costs for a third time this year as the intensifying conflict over Ukraine and the threat of wider sanctions squeeze the economy and undercut the ruble.

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