Treasury 30-year bonds reached a record yield premium over 10-year notes amid speculation the Federal Reserve will concentrate on purchases of medium-term debt as it tries to keep down borrowing costs.
The longest maturities, the most sensitive to inflation expectations, also lagged behind shorter-term notes after the Fed said it’s prepared to ease monetary policy to spur the economy. Bank of America Merrill Lynch said Fed bond purchases would be attacking the wrong problem. Ten-year notes fell before the U.S. sells $21 billion of them in the second of three sales of $66 billion of notes and bond this week. Stocks rose.
“A tempering of the disinflation expectations and the expectations of the Fed buying shorter-dated securities is weighing on 30-year” debt, said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies & Co., one of 18 primary dealers that trade with the central bank. “As disinflation has come off the table, it forces a reevaluation of where the back end should be.”
Ten-year yields, a benchmark for everything from home mortgages to corporate bonds, rose three basis points, or 0.03 percentage point, to 2.46 percent at 10:48 a.m. in New York, according to BGCantor Market Data. The 2.625 percent note due in August 2020 fell 7/32, or $2.19 per $1,000 face amount, to 101 14/32.
Yields on 30-year bonds increased three basis points to 3.85 percent. The difference between the two rates reached 1.4 percentage points, the most since Bloomberg started tracking the figures in 1977. Two-year note yields fell 1 basis point to 0.36 percent. It was the first trading day this month they failed to reach or match a record low.
Note Auction
The 10-year securities scheduled for sale today yielded 2.461 percent in pre-auction trading, compared with 2.67 percent the last time the notes were sold on Sept. 8.
Thirty-year bonds have lost 1.76 percent this month, versus a 0.92 percent gain by 10-year Treasuries, according to Bank of America Merrill Lynch indexes. The 10-year yield dropped to 2.33 percent on Oct. 8, the least since January 2009, as speculation mounted that the Fed will announce a resumption of its program of asset purchases as soon as next month to boost the economy.
The central bank’s policy-setting Federal Open Market Committee last month was prepared to ease monetary policy in a process known as quantitative easing “before long” and focused on purchases of Treasuries and boosting inflation expectations as ways to add stimulus, according to minutes released yesterday of the Sept. 21 session.
November Start
The Fed may resume its quantitative easing program in November, when it next meets, BNP Paribas SA said today. Policy makers are likely to announce “an initial purchase amount of $500 billion in long-term securities,” Yelena Shulyatyeva, an economist in New York, wrote in a research report.
Quantitative easing aims at the wrong problem, according to strategists at BofA Merrill Lynch.
“Count us as skeptical if not on the likelihood of QE2 then certainly on its effectiveness,” strategists led by Jeffrey Rosenberg in New York wrote in a note to clients dated yesterday. “It is not the supply or cost of credit that is currently the deterrent to economic activity. Rather, confidence remains low, suppressing investment and demand for credit.”
The spread between yields on 10-year notes and Treasury Inflation Protected Securities, an indication of inflation expectations, widened 0.04 percentage point to 2.03 percentage points. The five-year average is 2.10 percentage points.
The Standard & Poor’s 500 Index rose 0.7 percent.
Treasury Auctions
Longer-term Treasuries fell before today’s auction of 10- year debt. Yesterday’s sale of $32 billion in three-year notes drew bids for 2.95 times the amount sold, the least since February.
“Stocks are up this morning, which is helping the market set up for the 10-year auction after yesterday’s saw tepid demand,” said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm. “The street is trying to pressure us lower, but there will be more demand for the 10-year note than for the 3- year note yesterday due to the expectations for QE buying in that part of the curve.”
Investors bid for 3.21 times the amount of 10-year notes on offer last month, versus the average of 3.10 for the past 10 auctions. Indirect bidders, the group that includes foreign central banks, bought 54.7 percent of the debt, while the 10- sale average is 40 percent.
‘Cautious’ Bidders
“Was yesterday’s auction a sign that the market has overshot itself ahead of QE, especially with the FOMC minutes hinting QE is on the horizon?” Justin Lederer and Amrut Bharambe, interest-rate strategists in New York at Cantor Fitzgerald LP, wrote in a note to clients. “Or is this backup ahead of the long-end supply a market correction that is desperately needed? Regardless of either scenario, we believe bidders will be cautious today.”
The $13 billion 30-year auction tomorrow will round out debt this week’s offerings of notes and bonds.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.
http://jodnet.blogspot.com
The longest maturities, the most sensitive to inflation expectations, also lagged behind shorter-term notes after the Fed said it’s prepared to ease monetary policy to spur the economy. Bank of America Merrill Lynch said Fed bond purchases would be attacking the wrong problem. Ten-year notes fell before the U.S. sells $21 billion of them in the second of three sales of $66 billion of notes and bond this week. Stocks rose.
“A tempering of the disinflation expectations and the expectations of the Fed buying shorter-dated securities is weighing on 30-year” debt, said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies & Co., one of 18 primary dealers that trade with the central bank. “As disinflation has come off the table, it forces a reevaluation of where the back end should be.”
Ten-year yields, a benchmark for everything from home mortgages to corporate bonds, rose three basis points, or 0.03 percentage point, to 2.46 percent at 10:48 a.m. in New York, according to BGCantor Market Data. The 2.625 percent note due in August 2020 fell 7/32, or $2.19 per $1,000 face amount, to 101 14/32.
Yields on 30-year bonds increased three basis points to 3.85 percent. The difference between the two rates reached 1.4 percentage points, the most since Bloomberg started tracking the figures in 1977. Two-year note yields fell 1 basis point to 0.36 percent. It was the first trading day this month they failed to reach or match a record low.
Note Auction
The 10-year securities scheduled for sale today yielded 2.461 percent in pre-auction trading, compared with 2.67 percent the last time the notes were sold on Sept. 8.
Thirty-year bonds have lost 1.76 percent this month, versus a 0.92 percent gain by 10-year Treasuries, according to Bank of America Merrill Lynch indexes. The 10-year yield dropped to 2.33 percent on Oct. 8, the least since January 2009, as speculation mounted that the Fed will announce a resumption of its program of asset purchases as soon as next month to boost the economy.
The central bank’s policy-setting Federal Open Market Committee last month was prepared to ease monetary policy in a process known as quantitative easing “before long” and focused on purchases of Treasuries and boosting inflation expectations as ways to add stimulus, according to minutes released yesterday of the Sept. 21 session.
November Start
The Fed may resume its quantitative easing program in November, when it next meets, BNP Paribas SA said today. Policy makers are likely to announce “an initial purchase amount of $500 billion in long-term securities,” Yelena Shulyatyeva, an economist in New York, wrote in a research report.
Quantitative easing aims at the wrong problem, according to strategists at BofA Merrill Lynch.
“Count us as skeptical if not on the likelihood of QE2 then certainly on its effectiveness,” strategists led by Jeffrey Rosenberg in New York wrote in a note to clients dated yesterday. “It is not the supply or cost of credit that is currently the deterrent to economic activity. Rather, confidence remains low, suppressing investment and demand for credit.”
The spread between yields on 10-year notes and Treasury Inflation Protected Securities, an indication of inflation expectations, widened 0.04 percentage point to 2.03 percentage points. The five-year average is 2.10 percentage points.
The Standard & Poor’s 500 Index rose 0.7 percent.
Treasury Auctions
Longer-term Treasuries fell before today’s auction of 10- year debt. Yesterday’s sale of $32 billion in three-year notes drew bids for 2.95 times the amount sold, the least since February.
“Stocks are up this morning, which is helping the market set up for the 10-year auction after yesterday’s saw tepid demand,” said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm. “The street is trying to pressure us lower, but there will be more demand for the 10-year note than for the 3- year note yesterday due to the expectations for QE buying in that part of the curve.”
Investors bid for 3.21 times the amount of 10-year notes on offer last month, versus the average of 3.10 for the past 10 auctions. Indirect bidders, the group that includes foreign central banks, bought 54.7 percent of the debt, while the 10- sale average is 40 percent.
‘Cautious’ Bidders
“Was yesterday’s auction a sign that the market has overshot itself ahead of QE, especially with the FOMC minutes hinting QE is on the horizon?” Justin Lederer and Amrut Bharambe, interest-rate strategists in New York at Cantor Fitzgerald LP, wrote in a note to clients. “Or is this backup ahead of the long-end supply a market correction that is desperately needed? Regardless of either scenario, we believe bidders will be cautious today.”
The $13 billion 30-year auction tomorrow will round out debt this week’s offerings of notes and bonds.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.
http://jodnet.blogspot.com
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