Treasuries advanced for a second day, recouping more than half the losses posted since Federal Reserve policy makers announced more stimulus last week, on speculation economic growth will fail to spur employment gains.
Yields on 30-year bonds have declined 10 basis points in the past two days, after surging 17 basis points after the conclusion of the Federal Open Market Committee meeting Sept. 13. The central bank is unlikely to stop purchasing Treasuries when its separate Operation Twist program ends in December, some of Wall Street’s biggest bond-trading firms said. International net purchases of Treasuries rose to $50 billion in July from $32.4 billion the month before, government data showed today.
“Time brings in buyers as people recognize the growth challenges going forward,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of 21 firms that trade Treasuries with the Fed. “Given the fact that yields are as low as they are, when the yield goes from 1.50 to 1.80 percent it will attract buyers.”
Thirty-year yields dropped five basis points, or 0.05 percentage point, to 2.99 percent at 10:02 a.m. in New York, according to Bloomberg Bond Trader prices. They touched 3.12 percent yesterday, the highest since May, before they began falling. The 2.75 percent security due in August 2042 gained 31/32, or $9.69 per $1,000 face amount, to 95 3/8.
The benchmark 10-year yield fell five basis points to 1.79 percent. It touched a record low of 1.379 percent on July 25 before increasing to 1.89 percent on Sept. 14, also the highest since May. It has averaged 3.72 percent over the past decade.
The Federal Open Market Committee said in a statement Sept. 13 it will make open-ended purchases of $40 billion of mortgage debt a month as it seeks to boost economic growth and reduce unemployment. The committee said it will continue its purchases and take additional steps “if the outlook for the labor market does not improve substantially.”
The Fed also said it will continue its program to swap $667 billion in shorter-term debt in its holdings with longer-term Treasuries through December, when it’s scheduled to end. The effort, known as Operation Twist, is aimed at lowering long-term borrowing costs.
Bank of America Corp., Jefferies & Co. Inc. and Barclays Plc, which are also primary dealers, predicted the Fed will keep buying Treasuries once the program is completed.
“If the pace of economic growth stays close to where it is now, then it will be hard for the Fed in December to make the argument that we’ve had sustained and substantial improvement,” Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York, said during a telephone interview. “The Fed will effectively continue Operation Twist in January without the debt sales. If they let the Treasury purchases stop, it would be de-facto tightening monetary policy.”
The central bank will purchase as much as $5 billion today of U.S. government securities due from September 2018 to August 2020 as part of the program.
Treasuries rose yesterday for the first time in five days as a New York factory gauge dropped, underscoring concern growth isn’t strong enough to lead to improvement in the labor market.
A government report today showed international demand for U.S. financial assets climbed in July as investors sought shelter from the debt crisis in Europe, where leaders have been struggling to find a solution. Net buying of long-term equities, notes and bonds totaled $67 billion during the month, compared with net purchases of $9.3 billion in June, the Treasury Department said today in Washington.
Treasuries were supported earlier as a survey showed German investor sentiment was negative for a fourth month in September, boosting demand for the safest assets. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August.
The European Central Bank stands ready to buy debt to help counter the euro area’s financial crisis, as policy makers strive to bolster economic growth.
“It doesn’t take much to tip us into a global recession,” said Joachim Fels, chief economist at Morgan Stanley in London. “It could go either way.”
Stocks are beating bonds this year. Treasuries returned 1.3 percent in 2012 through yesterday, Bank of America Merrill Lynch indexes show. The Standard & Poor’s 500 Index gained 18 percent, including reinvested dividends.
The Fed said in its Sept. 13 statement that its bond purchases also aim to support the mortgage market.
U.S. 30-year fixed mortgage rates have fallen to 3.52 percent from 4.18 percent a year ago, according to Bankrate.com in North Palm Beach, Florida. The rate was 1.65 percentage points more than 10-year Treasury yields on Sept. 14, the least since July 2011.