NEW YORK, Nov 5 —Treasury 10-year notes declined for the fourth time in five days after a drop in yields on speculation that the Federal Reserve would refrain from tapering its asset-purchase program this year deterred buyers.
Treasuries due in 10 years or more, the world’s worst- performing bonds this year, have rebounded in the past two months as US economic data fell short of analyst expectations. Two Fed officials said yesterday they supported maintaining monthly bond purchases to spur the economy.
“We pushed our tapering expectation back to the March meeting a few weeks ago, and we’re comfortable with that,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The current yield looks a bit rich. As we approach March we may see yields rising towards 3 per cent again.”
Benchmark 10-year yields rose one basis point, or 0.01 percentage point, to 2.62 per cent as of 7:02 a.m. New York time, according to Bloomberg Bond Trader data. The 2.5 per cent note due in August 2023 fell 1/8, or US$1.25 (RM3.97) per US$1,000 face amount, to 98 31/32. The yield has risen 11 basis points in the past five days.
The rate has dropped from 2.99 per cent on Sept. 5, which was the highest close this year.
Fed speakers
Fed Governor Jerome Powell said yesterday the central bank will probably sustain its stimulative policy for some time, and it is uncertain when any tapering of US$85 billion in monthly bond purchases will begin.
Boston Fed President Eric Rosengren said more needs to be done until the labor market gains strength. As a governor, Powell holds a permanent vote on the policy committee. Rosengren votes this year though not next. The central bank’s next meetings are Dec. 17-18, Jan. 28-29 and March 18-19.
Treasury trading volume at ICAP Plc, the largest inter- dealer broker of US government debt, was US$164.7 billion yesterday. The only time it was lower this year was Aug 9, when it fell to US$147.8 billion. The high was US$662.3 billion on May 22.
Debt due in 10 years and more gained 4.1 per cent in the past two months, 34th of 144 indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. The securities are the biggest losers for 2013 with a 9.1 per cent loss.
The Citigroup Economic Surprise Index fell to negative 3.8 yesterday as data trailed analysts’ estimates by the most since July 30. The negative reading compares with this year’s high of positive 56.80 in September.
Data ‘mixed’
“The economic data are mixed,” said Hajime Nagata, who helps oversee the equivalent of US$119.9 billion as an investor in Tokyo at Diam Co., a unit of Dai-ichi Life Insurance Co. “Employment is not strong. The probability of a December tapering is not high.”
While manufacturing picked up in October, consumer confidence fell. A report today will show growth in service industries slowed last month, according to a Bloomberg News survey of economists.
The US added 120,000 jobs in October, versus 148,000 in September and 193,000 in August, based on responses from economists in a Bloomberg News survey before the Labor Department reports the figure Nov 8.
Higher yields
The pace of economic growth is enough to send 10-year yields up to 2.75 per cent by Dec. 31, said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., part of Japan’s second-largest publicly traded bank by market value.
“The economy is sluggish,” Shimazu said. “However, it continues to grow. US Treasuries are not an attractive market.”
Longer-term debt is especially vulnerable, he said. The Fed concentrates its purchases on these securities, and it will reduce purchases eventually, Shimazu said. Inflation may also pick up in the years ahead, he said.
The difference between yields on 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 2.14 per centage points. The average over the past decade is 2.22 per centage points.
Fed Vice Chairman Janet Yellen’s nomination to take over as head of the US central bank when Ben S. Bernanke’s term expires in January is a plus for Treasuries, according to Zach Pandl, a Minneapolis-based money manager and strategist at Columbia Management Investment Advisers LLC, which oversees US$345 billion.
Yellen is more likely to advocate a slower end to the Fed’s bond-purchase program and a longer period of holding the benchmark interest rate near zero than her peers at the central bank, Pandl wrote on the Columbia website. The Fed has held its target for overnight lending between banks in a range of zero to 0.25 per cent since December 2008. — Bloomberg
