April 23 (Bloomberg) -- Treasuries climbed for a fourth day, pushing the 10-year note yield to the lowest in almost two months, as concern the euro-area debt crisis may slow U.S. economic growth stoked demand for safety.
The yield on the 30-year bond dropped to the lowest in almost seven weeks before the Federal Open Market Committee begins a two-day meeting tomorrow to set monetary policy. Treasuries were supported as a first round of French elections ended with President Nicolas Sarkozy trailing his Socialist rival and the Dutch government offered to quit. The U.S. will sell $99 billion of debt starting tomorrow.
“Europe is still driving U.S. rates,” said Chris Ahrens, head interest-rate strategist in Stamford, Connecticut, at UBS AG, one of 21 primary dealers that trade Treasuries with the Federal Reserve. “There’s a concern regarding how these events will play out given the austerity fatigue percolating among the populous. People are buying the risk-free asset.”
Benchmark 10-year yields fell four basis points, or 0.04 percentage point, to 1.93% at 12:56 p.m. New York time, according to Bloomberg Bond Trader prices. The yield reached 1.91%, the least since Feb. 28. The 2% note due February 2022 rose 9/32, or $2.81 per $1,000 face amount, to 100 20/32. The record low yield was 1.67% set Sept. 23. Ten-year yields have fallen for five weeks.
The 30-year bond yield fell four basis points to 3.08%, the lowest since March 6.
Fed Meets
Treasuries also rose amid speculation Fed Chairman Ben S. Bernanke will say this week that more needs to be done to help the U.S. economy.
The Fed’s policy-setting committee will issue a statement and Bernanke is scheduled to give a press conference on April 25. He said last month that unemployment is too high.
“Their economic assessment is going to be important,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “The U.S. economy has softened a little. We’re also getting close to the end of Operation Twist, so there may be verbiage steering the market in some type of direction.”
The Fed is replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs in a program known as Operation Twist. It bought $1.832 billion of Treasuries due from February 2036 to February 2042 today as part of the program, according to the New York Fed’s website.
FOMC Watch
U.S. central bankers bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, known as QE1 and QE2. They’ve also said they will probably keep their target for overnight lending between banks at almost zero at least until late 2014 to boost the economy.
U.S. jobs growth slowed to 120,000 in March from 240,000 in February, the Labor Department reported April 6, fueling the debate over whether the Fed needs to start a new program of debt purchases to spur growth.
GDP probably expanded at a 2.5% annual rate, according to the median forecast of 81 economists surveyed by Bloomberg News before the Commerce Department report. It advanced at a 3% pace in the previous three-month period.
“It will be ‘steady as she goes’ with the FOMC,” Ahrens of UBS said. “We’re not expecting for them to announce they are engaging in another round of QE, or an extension of Operation Twist.”
The Fed will make almost no change to the FOMC statement it releases on April 25, while revising down its unemployment projection and moving up growth and inflation forecasts, JPMorgan Chase & Co. economist Michael Feroli wrote in an April 20 client note. The statement won’t mention more QE, wrote Feroli, and will repeat guidance for keeping its benchmark interest rate in a range of zero to 0.25% through late-2014.
The U.S. plans to sell $35 billion of two-year notes tomorrow, the same amount of five-year debt the following day and $29 billion of seven-year debt on April 26.
The decline in yields has narrowed the difference between the upper end of the Fed’s rate target and seven-year rates to 1.07 percentage points, the least since Feb. 2. The central bank has kept its benchmark rate’s targeted range steady since December 2008.
Valuation measures show Treasuries are at the most expensive level in almost seven weeks. The term premium, a model created by economists at the Fed, touched negative 0.68%, the most expensive since March 6. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
‘Greatest Value’
Lacy Hunt, whose bond fund has beaten 99% of its peers during the past five years by buying the longest maturity Treasuries, said 30-year government securities are the world’s best debt investment.
“The long end of the Treasury curve offers the greatest value,” Hunt, the chief economist at Austin, Texas-based Hoisington Investment Management, which oversees more than $4.5 billion, said April 17 in a telephone interview. “The risk of deflation is greater than the risk of inflation over the next several years,” said Hunt, whose firm’s Wasatch-Hoisington U.S. Treasury Fund has returned 76% since April 2007.
While the U.S. economy is expanding, it isn’t sparking faster inflation, helping push bond yields and government borrowing costs back toward record lows.
The 30-year yield is consolidating after dropping to 3.06% on March 6, according to data compiled by Bloomberg. The security’s price may find support at the yield’s 50-day moving average of 3.22%, the data show. A support level is an area on a chart where analysts anticipate orders to buy a security will be grouped.
European Turmoil
France’s Sarkozy and Socialist challenger Francois Hollande made it to the final round of France’s presidential election, while Marine Le Pen’s anti-euro National Front got 18.1%, a record for the party.
Dutch Prime Minister Mark Rutte offered to resign, a move that would trigger early elections, as he sought to win parliamentary support for additional budget cuts needed to steer the Netherlands clear of the debt crisis. Rutte tender the Cabinet’s resignation to Queen Beatrix.
The yield on Germany’s 10-year bund, the euro-region’s benchmark government security, dropped as much as eight basis points to 1.63%, a record low. The Standard & Poor’s 500 declined 1 percent. The dollar strengthened 0.6% against the euro to $1.3134.
“It’s the general economic uncertainty posed by further deterioration of the European situation,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
