BLBG: Treasury 10-Year Note Yield Near One-Week Low Before Fed Purchases of Debt
Treasuries rose, pushing the 10-year note yield toward its lowest level in more than a week, before the Federal Reserve buys as much as $11 billion in government securities under the second round of quantitative easing.
Bonds also gained after Moody’s Investors Service said it may cut Portugal’s credit rating. Benchmark 10-year note yields have risen about 1 percentage point from their 2010 low reached in October on speculation the U.S. extension of tax cuts will spur economic growth and widen the budget deficit.
“The market may get bid up into the Fed buyback,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “There is still scope for a reasonably substantive rally into year-end given that we’ve backed yields up as far as we have.”
The 10-year note yield decreased three basis points, or 0.03 percentage point, to 3.31 percent at 8:05 a.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 rose 7/32, or $2.19 per $1,000 face amount, to 94 1/4.
The yield dropped to 3.25 percent yesterday, the lowest level since Dec. 10. The yield fell to the 2010 low of 2.33 percent on Oct. 8. The yield rose on Dec. 16 to 3.56 percent, the highest level since May 13.
The 10-year note yield will slide to 2.98 percent by March 31, according to the average forecast in a Bloomberg News survey of 67 strategists and economists, with the most recent forecasts given the heaviest weightings.
Downgrade Threat
Moody’s put Portugal’s A1 long-term and Prime-1 short-term government bond ratings on watch, the ratings company said today. Moody’s lowered Ireland’s rank by five levels on Dec. 17 and said two days earlier that it may reduce Spain’s rating, citing “substantial funding requirements.”
The Fed is scheduled to buy $7 billion to $9 billion of notes due from June 2016 to November 2017 and $1 billion to $2 billion of Treasury Inflation Protected Securities maturing from July 2012 to February 2040.
The central bank purchased debt yesterday maturing from 2018 to 2020 and from 2014 to 2016, taking up $14.6 billion in securities, the biggest amount in a single day under the second round of quantitative easing.
St. Louis Fed President James Bullard said on CNBC yesterday that he’s concerned about the influence of central bank actions on commodity prices. Bullard said he’s “very concerned about feedbacks to commodity prices” from the Fed’s policy of bond buying. The policy has been “modestly successful so far,” he said.
Gain in Commodities
The Thomson Reuters/Jefferies CRB Index of 19 commodities climbed to 324.37 yesterday, the most since Oct. 6, 2008. Gold and oil both rose for a third day today.
Treasuries have handed investors a loss of 2.1 percent this month, paring this year’s returns to 5.6 percent since Dec. 31, according to Bank of America Merrill Lynch indexes. Debt issued by euro-area governments has gained 1.2 percent, with Irish and Portuguese debt losing 13 percent and 7.9 percent, respectively.
Bond trading indicates traders are adding to bets that inflation will pick up. The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices over the life of the securities, was at 2.28 percentage points today, up from this year’s low of 1.47 percentage points in August. The five-year average is 2.09 percentage points.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
