Treasury market volatility fell to near a record low on speculation Federal Reserve Chairman Ben S. Bernanke will support the case for maintaining bond purchases in a speech Tuesday.
The Merrill Lynch MOVE Index slid to a six-month low of 58.31 Monday, approaching the record of 48.87 set May 9. Bernanke is scheduled to speak at 7 p.m. Tuesday in Washington. Fed Vice Chairman Janet Yellen, in her confirmation hearing last week to be the next central bank chairman, said she’s committed to promoting an economic recovery and will ensure stimulus isn’t removed too soon.
“People are expecting tapering to happen probably in January or little bit later,” said Ali Jalai, a Singapore-based trader at Scotiabank, a unit of Canada’s Bank of Nova Scotia, one of the 21 primary dealers that trade directly with the Fed. “As a result, I don’t think the market is going to be very volatile. We should be in a trading range and a little bit lower in rates in the next month or two.”
Benchmark 10-year yields were little changed at 2.66 percent Tuesday morning Tokyo, according to Bloomberg Bond Trader prices. The yield is below its average over the past decade of 3.51 percent. The price of the 2.75 percent note due in November 2023 was 100 3/4.
Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, was $233.8 billion Monday, below the 2013 average of $314.8 billion. It fell to a 2013 low of $147.8 billion on Aug. 9. The high was $662.3 billion on May 22.
The difference between five- and 10-year yields was 1.35 percentage points, after reaching 1.37 percentage points on Nov. 14, the most since August 2011, as investors bet Yellen will keep short-term rates low.
The U.S. central bank buys $85 billion of Treasuries and mortgage-backed securities each month to put downward pressure on borrowing costs. Officials will pare the purchases to $70 billion a month at their March 18-19 meeting, according to the median economist estimate in a Bloomberg News survey on Nov. 8.
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