Treasuries rose in the longest rally in more than a year as the European Central Bank was said to wait until a court ruling before unveiling full details of a bond-buying plan to help resolve the region’s debt crisis, renewing the refuge appeal of U.S. government debt.
The yield on the U.S. 10-year note fell for a sixth day in its longest decline since May 2011 as data showing that demand for U.S. capital goods fell the most in eight months bolstered speculation the Federal Reserve will add monetary stimulus. Treasuries headed for their first weekly gain in a month amid concern ECB President Mario Draghi may not announce a definitive purchase program at the bank’s September meeting.
“There’s a lot of uncertainty, and it could go very wrong,” David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut, said of the ECB speculation. “All of us were excited to think that on Sept. 6 we would get details of bond-buying plan. There’s a lot of room for disappointment.”
The benchmark 10-year yield dropped four basis points, or 0.04 percentage point, to 1.64 percent at 10:07 a.m. in New York, according to Bloomberg Bond Trader prices. It touched 1.63 percent, the lowest since Aug. 13. The yield slid 17 basis points this week, the most since the five days ended June 1.
Treasuries are the most expensive since Aug. 6, according to the term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation. The gauge was negative 0.87 percent today, after reaching negative 0.70 percent on Aug. 16, the least costly since May. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
With Germany’s Constitutional Court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to two bank officials, who spoke on condition of anonymity because the deliberations are not public. The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.
Draghi announced on Aug. 2 the ECB may intervene in the secondary market to reduce bond yields in countries such as Spain and Italy.
Treasuries extended gains after data showed bookings for non-military capital equipment excluding planes slumped 3.4 percent, a Commerce Department report showed today in Washington. Total orders for durable goods, items meant to last at least three years, jumped 4.2 percent, paced by a 54 percent surge in demand for civilian aircraft.
“If people really digested this durable-goods report, they would understand it’s extremely weak,” said Tom Porcelli, chief U.S. economist at Royal Bank of Canada’s RBC Capital Markets unit, LLC, one of 21 primary dealers that trade with the Fed. “We would be shocked if the Street didn’t take their GDP estimates down as a result of this report,” Porcelli wrote in an e-mail.
The firm has lowered its third-quarter U.S. gross domestic product forecast to 1.5 percent, from 1.7 percent.
Treasuries gained this week as the Fed signaled it’s ready to take additional steps to spur the recovery. Many policy makers said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes released Aug. 22 of the central bank’s most recent meeting, on July 31-Aug. 1.
Fed Chairman Ben S. Bernanke will speak on Aug. 31 in Jackson Hole, Wyoming, where he may clarify his thinking on the need for stimulus.