Treasuries Gain as Oil Stockpiles Lower Prices, Growth OutlookSusanne Walker
Treasuries rose as a report showing record U.S. crude inventories damped inflation projections amid signs the global economic slowdown is catching up with the U.S.
The 30-year bond yield approached record lows before the Federal Reserve ends a policy meeting and provides an update on plans to raise interest rates later this year. Greek stocks and bonds slumped on concern the nation’s newly elected government will seek to overturn austerity measures, fueling haven demand. The Treasury’s auction of $26 billion of two-year notes attracted a lower-than-forecast yield.
“There are economic headwinds domestically and abroad,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Oil is leaking lower and equities have come off. The combination of the two has extended the flight-to-quality bid in the Treasury market. The Greek story is a background factor that helped the Treasury market.”
The U.S. 30-year yield dropped five basis points, or 0.05 percentage point, to 2.36 percent at 1:08 p.m. in New York, according to Bloomberg Bond Trader data. The 3 percent bond due November 2044 rose 1 2/32, or $10.63 per $1,000 face amount, to 113 3/4. The yield touched an all-time low 2.33 percent Tuesday.
Crude oil futures fell 3 percent to $44.85 a barrel in New York.
Futures prices show a 69 percent chance the central bank will raise the overnight target rate to at least 0.5 percent by December. The odds were 90 percent a month ago.
Policy makers, who have kept their target interest rate between zero and 0.25 percent since December 2008, are scheduled to issue their statement at 2 p.m. They will maintain the current band, based on Bloomberg News surveys of economists.
If Fed Chair Janet Yellen goes ahead with raising interest rates this year, she runs the risk of having to quickly reverse course and cut rates, Jeffrey Gundlach, chief executive officer at DoubleLine Capital LP, said at a conference Tuesday in Hollywood, Florida. “There’s no fundamental reason to raise interest rates.”
U.S. long bonds have rallied this year on the outlook for slowing inflation, with 30-year Treasuries returning 7.4 percent, according to Bank of America Merrill Lynch indexes.
While a report in two days may show gross domestic product grew for a third quarter, the 3.1 percent pace predicted in a Bloomberg survey of analysts for the past three months of 2014 compares with 5 percent in the period through September. The drop in orders for durable goods reported Tuesday overshadowed data showing new home sales and consumer confidence rose.
“The market’s kind of in a range, looking for new information,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.
A 53 percent plunge in crude oil prices during the past year has driven a surge in bond prices around the world as traders bet inflation will stay in check. Crude supplies rose 8.87 million barrels to 406.7 million, the most in records compiled since August 1982 by the Energy Information Administration.
The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 1.63 percentage points, from 2.14 percentage points a year ago.
The two-year notes drew a yield of 0.540 percent, compared with the average forecast of 0.541 percent in a Bloomberg News survey of eight of the Fed’s 22 primary dealers. The sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.74, versus an average of 3.36 at the past 10 auctions.
The U.S. is scheduled to sell $35 billion of five-year securities and $29 billion of seven-year debt on Thursday.