Treasuries Fall Before 10-Year Note Auction, Fed Minutes Release

Treasuries fell, with 10-year note yields rising from the lowest level in more than a month, before the U.S. sells $21 billion of the securities and the Federal Reserve releases minutes of its latest policy meeting.

Treasuries gained earlier after Chicago Fed President Charles Evans said unemployment remains too high and a stronger dollar could hurt the country’s exports. Government bonds surged around the world yesterday as the International Monetary Fund cut its global-growth outlook. Thirty-year bonds fell before the U.S. concludes this week’s auctions with $13 billion of the debt tomorrow.

“People are starting to prepare for” the 10-year auction, said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “The Fed will stand pat on its belief that interest rates will stay low for a long period of time.”

The U.S. 10-year yield rose two basis points, or 0.02 percentage point, to 2.36 percent at 12:23 p.m. New York time, according to Bloomberg Bond Trader data. The 2.375 percent note due August 2024 traded at 100 5/32. The yield reached 2.33 percent, the lowest level since Aug. 29.

The yield on the 30-year bond added two basis points to 3.07 percent, after touching 3.04 percent, the lowest level since May 2013.

Inflation Measure

The difference between U.S. 10-year yields and those of similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, shrank to 1.91 percentage points, the narrowest since June 2013.

The 10-year securities to be sold today yielded 2.37 percent in pre-auction trading, the lowest level since June 2013, according to data compiled by Bloomberg. At the previous sale of the securities on Sept. 10, the notes drew a yield of 2.535 percent.

The government sold $27 billion of three-year notes yesterday.

The Fed is scheduled to publish the minutes of its Sept. 16-17 meeting at 2 p.m. Policy makers last month raised their median estimate for the key rate to 1.375 percent by the end of next year, compared with a June forecast of 1.125 percent. The rate has been in a range of zero to 0.25 percent since December 2008.

Fed Views

Predictions for the central bank to increase interest rates in mid-2015 are “reasonable,” as policy makers wait for unemployment to fall further and inflation to rise, New York Fed President William C. Dudley said in a speech yesterday.

“The most interesting thing is the debate around forward guidance,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands. “At the last meeting most in the markets thought it was about time to change this ‘considerable time’ phrase..”

The world economy will grow 3.8 percent next year, compared with a July forecast for 4 percent, after a 3.3 percent expansion this year, the Washington-based IMF said. The U.S. is a bright spot, according to the IMF, where growth predictions were raised.

The U.S. deficit will drop to $486 billion for fiscal year 2014, the least since 2008, according to the congressional budget office.

The average yield on U.S., Japan and German bonds dropped to 1.25 percent, according to data compiled by Bloomberg that go back to 1989. The low, of 1.11 percent, was set in July 2012.

The U.S. 10-year yield will rise to 2.74 percent by year-end, according to analysts surveyed by Bloomberg, with the most recent forecasts given the heaviest weightings.

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