Treasuries gain as yields draw demand before Fed buys bonds

Aug. 16 (Bloomberg) -- Treasuries rose, halting three days of losses, as yields at three-month highs attracted demand for U.S. sovereign debt.

U.S. 30-year bonds gained as the Federal Reserve is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to August 2042 today as part of its program to boost the economy, according to the Fed Bank of New York website. Treasury 10-year yields touched the highest since May as data pointed to improvement in the U.S. economy, dimming prospects for the central bank to add to its monetary stimulus.

“Yields are more likely to drop a little bit over the near term until we gather some more data,” Alan De Rose, head of Treasury trading at Oppenheimer & Co. Inc. in New York. “We’ve backed up 40 basis points in three weeks. We’ve backed up into some good support levels.”

The benchmark 10-year yield declined two basis points, or 0.02 percentage point, to 1.80 percent at 10:40 a.m. New York time, according to Bloomberg Bond Trader data. It was as high as 1.86 percent, the most since May 11. The price of the 1.625 percent security due in August 2022 added 5/32, or $1.56 per $1,000 face amount, to 98 14/32.

Yield Levels

Thirty-year bonds yields fell two basis points to 2.90 percent, after reaching 2.96 percent, the most since May 15.

The 10-day relative-strength index, a gauge of momentum, for the 10-year note, was 70.7 today from 47.5 Aug. 2. A level below 30 or above 70 suggests the yield may change direction. The index reached 28.5 on July 24, the day before the 10-year yields fell to a record low 1.379 percent.

The 10-year yield failed to breach 1.86 percent, its 200-day moving average, according to data compiled by Bloomberg. The yield has been below its 200-day moving average on April 6.

“Yesterday may have represented a bit of a catharsis, a purging of positions,” said Chris Ahrens, head interest-rate strategist at UBS AG in Stamford, Connecticut, one of the 21 primary dealers that trade with the Fed. “The economic backdrop remains shabby. You’re at the top of the band at RSI.”

Investors received 0.94 percentage point of additional yield by buying 10-year notes in the U.S. instead of Japan. The difference was almost the most since May.

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