April 19 (Bloomberg) -- Treasury 10-year note yields traded below 2% for a fifth day on concern the European debt crisis may worsen and as U.S. jobless claims and home sales missed forecasts, stoking demand for the safest assets.
The U.S. 10-year note has stayed within seven basis points of 2% for almost two weeks in the longest stretch below the level since February. Yields increased at French and Spanish bond auctions, underlining concern that Europe’s debt crisis is far from over. The U.S. is scheduled to sell a record $16 billion in inflation-linked securities and the Federal Reserve plans to buy as much as $2 billion in Treasuries.
“Fixed-income investors are not ignoring the fact that, over the last three weeks, economic data has been worsening,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “Europe is obviously an important portion of the story.”
The 10-year yield fell two basis points, or 0.2 percentage point, to 1.95% at 12:24 p.m. New York time, according to Bloomberg Bond Trader prices. The 2% note due February 2022 rose 6/32, or $1.88 per $1,000 face value, to 100 13/32. The yield has stayed between 1.94% to 2.07% since April 7.
Jobless claims rose last week to 386,000, a Labor Department report showed. The median forecast of 47 economists in a Bloomberg News survey was for a drop in jobless claims to 370,000 in the week ending April 14 from a revised 388,000 the previous week.
Home Sales
Sales of previously owned U.S. homes in March unexpectedly fell for the third time in the last four months, with purchases dropping 2.6% to a 4.48 million annual rate from 4.6 million in February, the National Association of Realtors reported in Washington. The median forecast of economists in a Bloomberg News survey called for an increase to 4.61 million. In January, sales at a 4.63 million rate were the strongest since May 2010.
Home starts slowed to a five-month low in March, the Commerce Department said April 17.
U.S. government debt was little changed this year as of yesterday, while Treasury Inflation Protected Securities rose 2.5%, according to Bank of America Merrill Lynch Indexes.
Valuation measures show Treasuries are at the most expensive level in six weeks. The term premium, a model created by economists at the Fed, reached negative 0.66%, the most expensive since March 7. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
‘Fiscal Concerns’
Treasuries have fluctuated between gains and losses each day this week. They rose yesterday as concern about Europe’s debt crisis boosted demand for the safest assets.
Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, dropped yesterday to 72.5 basis points, below this year’s average of 79 basis points. It reached 93.3 basis points on March 20, the highest level this year.
“The market is once again reminded of the broader credit and fiscal concerns facing Europe,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
Spain auctioned 2.54 billion euros of two- and 10-year debt, compared with a maximum target of 2.5 billion euros ($3.28 billion). The nation sold its 10-year benchmark bonds at an average yield of 5.743%, compared with 5.403% when it last sold them in January.
France sold 2.7 billion euros of benchmark five-year debt at an average yield of 1.83%, up from 1.78% on March 15. It also sold notes due in September 2014 and April 2015 and index-linked securities.
The bonds sales came amid Spanish Prime Minister Mariano Rajoy’s struggle to meet deficit targets and as the French presidential elections have driven up yields in the euro area.
“Europe is scaring a lot of people again,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of 21 primary dealers that trade Treasuries with the Fed. “Things seem to be deteriorating and that brings nervousness into the U.S. Treasury market. You are getting weaker data in the U.S.”
Five-year TIPS yielded negative 1.3% before today’s sale, compared with record low negative 0.877% at the previous auction of the securities on Dec. 15.
Investors bid for three times the amount of securities offered four months ago, compared with an average of 2.63 for the past 10 auctions. Indirect bidders, the category of investors that includes foreign central banks, bought 48.8%. The U.S. previously auctioned a record $14 billion in April 2011.
Debt Auctions
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, has widened to 2.23 percentage points from 1.95 percentage points at the end of 2011.
The U.S. is scheduled to announce the amount of notes it will auction next week. The auction plan will consist of $35 billion of two-year notes on April 24, the same amount of five- year debt the following day and $29 billion of seven-year debt on April 26, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
The Fed plans to buy as much as $2 billion of Treasuries due from August 2022 to February 2031 today as part of a plan to replace $400 billion of shorter-term debt in its holdings with longer maturities to keep borrowing costs down and boost the economy, according to the New York Fed’s website.
