Treasuries Decline as U.S. Home Sales Increase to One-Year HighDaniel Kruger
Treasuries fell after a report showed existing home sales rose to their highest level in a year, indicating the U.S. economy is still improving amid slowing global growth.
The benchmark 10-year note yield increased as prospects for additional stimulus from the European Central Bank boosted equities and curbed demand for the safest assets. A government report tomorrow is forecast to show that U.S. inflation declined for a third consecutive month in September. Market volatility slowed and trading volume declined after reaching a record last week.
“This is a market that’s in suspended animation, even while risk markets are doing better today,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 22 primary dealers that trade directly with the Federal Reserve. “We’re in a low inflation world with very highly accommodative central banks globally.”
The U.S. 10-year yield rose three basis points, or 0.03 percentage point, to 2.22 percent at 5 p.m. New York time, Bloomberg Bond Trader data show. It fell as much as six basis points. The 2.375 percent note due in August 2024 dropped 9/32, or $2.81 per $1,000 face amount, to 101 10/32.
The Standard & Poor’s 500 Index of stocks rose 2 percent, while all major indexes in Europe gained.
Volatility in the Treasury market reached a 13-month high of 101.28 on Oct. 15, as measured by the Bank of America Merrill Lynch MOVE index. It fell yesterday for a third day to 79.24 and has averaged 60.24 this year.
Trading of U.S. government securities at ICAP Plc, the world’s largest interdealer broker, was $312 billion, down from the $946 billion record set Oct. 15. The average volume at ICAP this year is $336 billion.
The Labor Department is likely to report tomorrow that consumer prices rose 1.6 percent in the 12 months ended September, according to the median forecast of 41 economists in a Bloomberg News survey. That’s down from 2.1 percent in June.
The gap between five-year yields on Treasury Inflation-Protected Securities and non-indexed U.S. debt with comparable maturity, traded at 1.53 percentage points. It reached 1.41 percentage points on Oct. 16, the lowest level since October 2011.
Treasuries investors were the most neutral in five months as of the week ended yesterday, according to a survey by JPMorgan Chase & Co.
Investors raised neutral bets to 65 percent from 54 percent to reach the highest level since the week ending May 19. Investors raised the proportion of net shorts to nine percentage points, from six percentage points the previous week. Outright shorts dropped to 22 percent from 26 percent, while outright longs dropped to 13 from 20 percent.
The ECB bought Italian covered bonds as it returned to the market for a second day, according to two people familiar with the matter.
Debt issued by Intesa Sanpaolo SpA was included in the purchases, according to one of the people, who asked not to be identified because the information is private. The ECB bought short-dated French notes from Societe Generale SA and BNP Paribas SA as well as Spanish securities from other lenders yesterday.
ECB buying “spurs risk-on and takes some of the fear bid out of the market,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co.
Sales of previously owned U.S. homes advanced 2.4 percent in September to a 5.17 million annual rate, the National Association of Realtors reported today in Washington. A gain of 1 percent was forecast in a Bloomberg News survey of economists.
“I don’t see the movement in the rates market as being an indicator of a slowdown in domestic economic growth,” said Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis. “There are some fears of economic slowdown, but there aren’t any data points to support, at this point, a sharp economic slowdown, which is why we don’t believe the Fed’s going to be altering its path.”
Futures on federal funds indicate a 65 percent likelihood the Federal Reserve will raise interest rates by its December 2015 meeting.
The central bank, which holds a policy meeting Oct. 28-29, has held its short-term interest-rate target at zero to 0.25 percent since December 2008. The Fed has expanded its balance sheet assets to $4.5 trillion from less than $1 trillion in 2008 in an effort to stimulate growth after the global financial crisis.