Treasuries Decline as Havens Lose Luster Ahead of Fed Statement

  • Yields rise as equities gain amid rising commodity prices
  • Long-dated bonds fall amid boosted inflation expectations

Treasuries fell as appetite for safe assets waned before the Federal Reserve’s policy decision, with investors looking ahead to whether officials will deliver an interest-rate increase in December.

Yields on securities with maturities of five years or longer increased the most as crude-oil and stock prices climbed. Rising energy costs fuel expectations for inflation, which weighs heaviest on the prices of long-term U.S. debt.

The Federal Open Market Committee’s Wednesday announcement, scheduled for 2 p.m. New York time, will come almost a week after European Central Bank President Mario Draghi signaled that officials are ready to inject more stimulus to the euro-area economy, which was followed a day later by the People’s Bank of China reducing its benchmark lending rate.

"There’s been a pretty good correlation between oil, stocks and bond yields over the last few weeks," said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. "Put that together with the trade number this morning," which showed U.S. merchandise exports rebounded more than expected, "and that’s putting some pressure on Treasuries going into an auction and the Fed meeting."

Benchmark U.S. 10-year note yields rose two basis points, or 0.02 percentage point, to 2.06 percent as of 11:14 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 2 percent security due in August 2025 fell 6/32, or $1.88 per $1,000 face amount, to 99 14/32. Analysts forecast that the yield will climb to 2.30 percent by the end of December, based on the median of predictions compiled by Bloomberg.

The U.S. will sell $35 billion of five-year debt on Wednesday. The notes due in October 2020 yielded 1.41 percent in pre-auction trading, compared with 1.467 percent at a previous five-year sale on Sept. 23. The U.S. sold $15 billion of two-year floating-rate securities at a yield of 0.168 percent.

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