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Tags: Treasury | Yields | fed | bonds

Treasury Yields at Almost Three-Month Highs as Fed Buys Bonds

Thursday, 16 August 2012 12:08 PM EDT

Treasurys fluctuated after three days of losses that pushed yields to three-month highs.

U.S. 10-year yields touched the highest since May as data pointed to improvement in the U.S. economy, dimming prospects for the central bank to add to its monetary stimulus. U.S. 30-year bonds were little changed as the Federal Reserve bought $1.9 billion of Treasurys due from February 2040 to August 2041 as part of its program to boost the economy.

“Yields are more likely to drop a little bit over the near term until we gather some more data,” Alan De Rose, head of Treasury trading at Oppenheimer & Co. Inc. in New York. “We’ve backed up 40 basis points in three weeks. We’ve backed up into some good support levels.”

The benchmark 10-year yield was little changed at 1.82 percent at 11:04 a.m. New York time, according to Bloomberg Bond Trader data. It was as high as 1.86 percent, the most since May 11. The price of the 1.625 percent security due in August 2022 traded at 98 7/32.

Yield Levels

Thirty-year bonds yields rose one basis point to 2.93 percent, after reaching 2.96 percent, the most since May 15.

The 10-day relative-strength index, a gauge of momentum, for the 10-year note, was 70.7 Thursday from 47.5 Aug. 2. A level below 30 or above 70 suggests the yield may change direction. The index reached 28.5 on July 24, the day before the 10-year yields fell to a record low 1.379 percent.

The 10-year yield failed to breach 1.86 percent, its 200-day moving average, according to data compiled by Bloomberg. The yield has been below its 200-day moving average on April 6.

“Yesterday may have represented a bit of a catharsis, a purging of positions,” said Chris Ahrens, head interest-rate strategist at UBS AG in Stamford, Connecticut, one of the 21 primary dealers that trade with the Fed. “The economic backdrop remains shabby. You’re at the top of the band at RSI.”

Investors received 0.94 percentage point of additional yield by buying 10-year notes in the U.S. instead of Japan. The difference was almost the most since May.

Economic Data

New-home starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008.

Jobless claims climbed by 2,000 to 366,000 in the week ended Aug. 11, Labor Department figures showed today in Washington. The median forecast of 45 economists surveyed by Bloomberg News called for an increase to 365,000.

The U.S. added 163,000 jobs last month, a government report showed on Aug. 3, more than the 100,000 projected by analysts. Retail sales rose 0.8 percent, the biggest increase since February, Commerce Department figures showed Aug. 14. Industrial production increased 0.6 percent in July from June, the Federal Reserve reported Wednesday.

Treasurys have handed investors a 1.4 percent loss this month, according to Bank of America Merrill Lynch data. An index of sovereign bonds around the world dropped 0.6 percent, the data show.

The MSCI All-Country World Index of stocks returned 2.4 percent including reinvested dividends, according to data compiled by Bloomberg.

Fed Targets

The U.S. central bank has held its target for overnight lending in a range of zero to 0.25 percent since 2008 and plans to keep it there at least through late 2014 to stimulate the world’s biggest economy. The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs. It’s now in the process of swapping shorter-term Treasurys in its holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs.

The Treasury announced it will sell $14 billion in 4-year 8-month inflation-indexed notes on Aug. 23.

An index of Treasury Inflation-Protected Securities has declined 2.1 percent this month, based on the Bank of America Merrill Lynch figures. The U.S. consumer-price index rose 1.4 percent in July from the year before, the smallest increase since November 2010, Labor Department data yesterday showed.

The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices during the life of the debt, was 2.27 percentage points. The average during the past decade is 2.15 percentage points.

© Copyright 2024 Bloomberg News. All rights reserved.

Thursday, 16 August 2012 12:08 PM
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