BLBG: Treasury Yield Curve Near Record Before $13 Billion Bond Sale
By Cordell Eddings and Lukanyo Mnyanda
March 11 (Bloomberg) -- The difference in yields between 2- and 30-year Treasuries was near the highest on record as the U.S. prepares to sell $13 billion of bonds amid signs the global recovery is gaining momentum.
U.S. stock-index futures fell, indicating the Standard & Poor’s 500 Index may snap two days of gains, before economic reports that may give further clues about the strength of the recovery. The dollar was mixed and the yen dropped against most major currencies on concern China will seek to damp economic growth after inflation accelerated to a 16-month high.
Investors are seeking higher interest rates on long-term U.S. government debt government as President Barack Obama borrows record amounts to sustain the recovery. Yields show investors added to bets on inflation for an eighth day, the longest run in almost a year.
“With the auction and data there is a little bit of uncertainty,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “We had strong Chinese data over night that has pushed us lower. We’ve also seen some setup for the auction. We’ve sold off a lot.”
The 30-year bond yield rose 2 basis points, or 0.02 percentage point, to 4.71 percent at 7:38 a.m. in New York, according to data compiled by Bloomberg. The 4.625 percent security due February 2040 declined 9/32, or $2.81 per $1,000 face amount, to 98 20/32.
Yield Curve
Thirty-year bonds yield 3.79 percentage points more than two-year notes. The gap reached 3.85 percentage points on Feb. 17, the most since at least 1980, according to data compiled by Bloomberg.
“We have so much supply in the long end of the curve that this could make it a more difficult auction,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “We could see yields going higher.”
The 30-year security will probably yield 4.75 percent by the end of June, compared with 1.1 percent for the two-year note, according to From. Similar-maturity German bunds will yield 4 percent and 1.2 percent, respectively, From said.
Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30.
Jobless Claims
Today’s auction of 30-year debt follows a sale of $21 billion of 10-year debt yesterday. The Treasury auctioned a record-tying $40 billion of three-year notes on March 9.
Initial claims for U.S. jobless benefits probably fell to 460,000 last week, according to the median of 45 predictions in a Bloomberg survey of economists, the Commerce Department may say today. Separate data may show the trade deficit widened in January as imports grew faster than exports.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of expectations for gains in consumer prices known as the breakeven rate, widened to 2.26 percentage points today, from 2.18 points a week ago. The average over the past five years is 2.16 percentage points. Germany’s 10-year breakeven rate is 1.83 percentage points.
Treasuries Versus Bunds
Ten-year Treasuries yielded 58 basis points more than similar-maturity bunds today, up from 38 basis points on Jan. 21. Treasuries have made investors 1.4 percent this year, trailing a 2.1 percent return on German securities, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit.
The 30-year bonds scheduled for sale today yielded 4.72 percent in pre-auction trading. At the most recent auction of the securities on Feb. 11, investors bid for 2.36 times the amount offered, versus an average of 2.48 for the past 10 sales. Indirect bidders, the group that includes foreign central banks, bought 29 percent, versus an average of 42 percent at the previous 10 sales.
The 10-year yield, a benchmark for everything from mortgage rates to student loans, has climbed 82 basis points in the past 12 months to 3.73 percent as evidence accumulates that the global economy is recovering from the recession.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
