Treasury yields climb to 4-month high on waning stimulus view

Inflation Outlook

The 10-year break-even rate, a gauge of the outlook for consumer prices derived from the difference between yields on conventional and inflation-linked bonds, rose to 2.39 percentage points, a level last seen on Aug. 2.

A measure of traders’ inflation expectations that the Fed uses to help guide monetary policy was at 2.5 percent, the highest since March 1 and down from 3.23 percent in August. The five-year, five-year forward break-even rate, which projects annual price increases over a five-year period beginning in 2017, is below its 2.76 percent average during the past decade.

Fed TIPS Buying

The U.S. central bank is scheduled to buy today as much as $1.5 billion of Treasury Inflation Protected Securities maturing from July 2018 to February 2042 under its program to replace holdings of shorter-term securities with longer-term bonds. The Fed bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011 to spur economic growth through lower borrowing costs.

The Treasury will auction $13 billion of 30-year debt today, capping note and bond offerings of $66 billion this week. The securities scheduled for sale yielded 3.35 percent in pre- auction trading, up from 3.24 percent the last time the bonds were sold on Feb. 9. Investors bid for 2.47 times the amount offered last month, the least since a November sale.

Indirect bidders, the group that includes foreign central banks, bought 29.2 percent of the debt, compared with the average of 31.2 percent for the past 10 auctions. Direct bidders, non-primary dealers buying for their own accounts, purchased 14.7 percent of the securities, lower than the 10-sale average of 16.5 percent.

Treasury 10-year note yields will advance to 2.54 percent by the end of the year, according to the average forecast in a Bloomberg News survey of economists, with the most recent projections given the heaviest weighting.

Bloomberg News

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