Treasuries headed for their first two-day decline in a week as investors prepared to bid for $16 billion of 30-year bonds, after demand tumbled at a 10-year note sale Wednesday.
Treasuries remained lower after a report showed sales at U.S. retailers rose in July and a June decline was revised away, signaling consumers are propelling economic growth and boosting the case for the Federal Reserve to raise interest rates. A separate report showed jobless claims in the U.S. are hovering close to a four-decade low.
“It’s very encouraging to see good numbers,” said Thomas Simons, a government-debt economist with Jefferies Group LLC, one of 22 primary dealers that trade directly with the Fed. “This is more on the good news side.”
Benchmark Treasury 10-year note yields rose three basis points, or 0.03 percentage point, to 2.18 percent as of 8:47 a.m. New York time. The yield declined to 2.04 percent Wednesday, the least since April 30, tumbling from 2.47 percent on July 13.
Thirty-year bond yields increased one basis point to 2.85 percent. The figure was as low as 2.72 percent this week, versus the 200-day average of 2.80 percent. Treasuries erased earlier gains even as China weakened its currency for a third day.
‘Stretched’ Yields
There’s a 48 percent chance the Fed will raise its benchmark at its Sept. 16-17 meeting based on the assumption that the benchmark will average 0.375 percent following the increase, data compiled by Bloomberg show. The probability of an increase this year is 73 percent. Simons said he expects the Fed will raise rates in December.
“It makes little sense for the Fed to raise rates when inflation is falling,” he said. Trading patterns suggest it’s time to sell long-term Treasuries following a month-long surge, according to Diam Co. The rally pushed 10- and 30-year yields down this week below their 200-day moving averages, an indicator some traders use to gauge levels of support or resistance.
“I’m bearish,” said Tokyo-based Hajime Nagata, who invests in Treasuries for Diam, which oversees the equivalent of $139.5 billion. “Ten- and 30-year Treasury yields look very stretched.” Nagata trimmed his holdings of the securities this week, he said.
Volatility Rises
Treasury market volatility climbed to a one-month high, according to the Bank of America Merrill Lynch MOVE Index. The gauge increased to 81.46 Wednesday, surging from as low as 69.71 on July 29.
The 30-year securities due to be sold Thursday yielded 2.86 percent in pre-auction trading, compared with 3.084 percent at a previous sale of 30-year bonds on July 9. That would be the lowest yield at auction since April.
The offering comes a day after an auction of 10-year notes was rated a ‘2’ by four of the Federal Reserve’s 22 primary dealers. The characterization is based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.
The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.40. That’s the lowest since March 2009 and compares with an average of 2.67 at the past 10 sales.
bloomberg.com
Treasuries remained lower after a report showed sales at U.S. retailers rose in July and a June decline was revised away, signaling consumers are propelling economic growth and boosting the case for the Federal Reserve to raise interest rates. A separate report showed jobless claims in the U.S. are hovering close to a four-decade low.
“It’s very encouraging to see good numbers,” said Thomas Simons, a government-debt economist with Jefferies Group LLC, one of 22 primary dealers that trade directly with the Fed. “This is more on the good news side.”
Benchmark Treasury 10-year note yields rose three basis points, or 0.03 percentage point, to 2.18 percent as of 8:47 a.m. New York time. The yield declined to 2.04 percent Wednesday, the least since April 30, tumbling from 2.47 percent on July 13.
Thirty-year bond yields increased one basis point to 2.85 percent. The figure was as low as 2.72 percent this week, versus the 200-day average of 2.80 percent. Treasuries erased earlier gains even as China weakened its currency for a third day.
‘Stretched’ Yields
There’s a 48 percent chance the Fed will raise its benchmark at its Sept. 16-17 meeting based on the assumption that the benchmark will average 0.375 percent following the increase, data compiled by Bloomberg show. The probability of an increase this year is 73 percent. Simons said he expects the Fed will raise rates in December.
“It makes little sense for the Fed to raise rates when inflation is falling,” he said. Trading patterns suggest it’s time to sell long-term Treasuries following a month-long surge, according to Diam Co. The rally pushed 10- and 30-year yields down this week below their 200-day moving averages, an indicator some traders use to gauge levels of support or resistance.
“I’m bearish,” said Tokyo-based Hajime Nagata, who invests in Treasuries for Diam, which oversees the equivalent of $139.5 billion. “Ten- and 30-year Treasury yields look very stretched.” Nagata trimmed his holdings of the securities this week, he said.
Volatility Rises
Treasury market volatility climbed to a one-month high, according to the Bank of America Merrill Lynch MOVE Index. The gauge increased to 81.46 Wednesday, surging from as low as 69.71 on July 29.
The 30-year securities due to be sold Thursday yielded 2.86 percent in pre-auction trading, compared with 3.084 percent at a previous sale of 30-year bonds on July 9. That would be the lowest yield at auction since April.
The offering comes a day after an auction of 10-year notes was rated a ‘2’ by four of the Federal Reserve’s 22 primary dealers. The characterization is based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.
The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.40. That’s the lowest since March 2009 and compares with an average of 2.67 at the past 10 sales.
bloomberg.com
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