Treasuries fall as Fed prepares to sell $21 billion in notes

By Cordell Eddings and Susanne Walker

Treasuries fell for the first time in five days as the U.S. prepared to sell $21 billion of 10-year notes an hour before the minutes of the Federal Reserve’s last policy meeting are released. The securities yielded 2.72 percent in trading before the 1 p.m. auction, compared with the 2.73 percent high yield at the last government sale on March 12. Treasuries have rallied since the March employment report released April 4 showed the U.S. added fewer jobs than forecast, easing concern the Fed would accelerate its winding down of monetary stimulus. “The supply, the better tone of the equity market and the uncertainty about the Fed minutes are weighing on the market,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The market has been very cautious, and wants to see what the minutes have to say as it continues to try to understand the Fed’s intentions.” The benchmark 10-year yield rose three basis points, or 0.03 percentage point, to 2.71 percent as of 9:39 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.75 percent note due in February 2024 fell 1/4, or $2.50 per $1,000 face amount to 100 10/32. The yield declined 12 basis points during the previous four days. The Standard & Poor’s 500 Index of stocks rose 0.3 percent. Market View “U.S. bonds are trading cheaper,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “We do have supply on the horizon. We have tended to trade better into supply, but there is a concession this morning as people are looking for the Fed minutes to have a more hawkish tone.” The Treasury sold three-year debt yesterday, and it plans to auction 30-year bonds tomorrow. With today’s 10-year note, the sales total $64 billion. A the previous auction of 10-year debt, investors bid for 2.92 times the amount offered in March, the highest level in a year at the monthly sales. Today’s sale is a re-opening of the 10-year note sold Feb. 12. The auctions will benefit from money managers reinvesting funds paid out to them from maturing securities, said John Gorman, head of dollar-denominated interest-rate products for Asia at Nomura Holdings Inc. in Singapore. The company is one of the 22 primary dealers that underwrite the U.S. debt. New Cash Investors hold $50.5 billion of Treasuries maturing on April 15, while the U.S. is raising $13.5 billion of new cash. When the government issued this combination of securities in March, the sales also totaled $64 billion, though half of it was comprised of new cash. Ten-year yields may rise to 3.25 percent in the next three months as U.S. employment gains improve, Gorman said. Fed policy makers at their March 18-19 meeting cut monthly bond purchases by $10 billion to $55 billion. Fed Chair Janet Yellen said the central bank may start to increase interest rates “around six months” after ending its asset buying. The central bank is winding down the stimulus program it has used to support the economy, while keeping its target for overnight lending between banks in a range of zero to 0.25 percent since 2008. The Fed’s preferred inflation gauge, personal consumption expenditures, dropped to 0.9 percent in February from a year earlier, the lowest since October, according to data released on March 28. “Bond market participants expect only limited inflation,” said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $59.4 billion in assets. “If market participants start to believe the Fed will increase interest rates, long-term yields will go up, but it will be limited.” The difference in yields on 10-year notes and inflation- protected debt, known as the break-even rate, was at 2.12 percentage points, almost the lowest level since Feb. 7.

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