Treasuries rose for a third day, the longest stretch this month, as investors sought haven on concern European Central Bank President Mario Draghi’s plan to buy government debt may fail to stop a euro-bloc breakup.
The yield on the 10-year note has declined 10 basis points this week after reaching a four-month high on Sept. 14, a day after the Federal Reserve announced new measures to stimulate the U.S. economy. New housing construction rose less than forecast last month, a Commerce Department report showed. The Fed will purchase up to $2 billion in longer-term securities today as part of a program to keep borrowing costs down.
“We had a pretty big liquidation last week, and now were are retracing that price action,” said Tom Tucci, managing director and head of Treasury trading in New York at Canadian Imperial Bank of Commerce’s CIBC World Markets unit. “The economy is still weak.”
The U.S. 10-year yield fell four basis points, or 0.04 percentage point, to 1.77 percent at 9:21 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 gained 11/32, or $3.44 per $1,000 face amount, to 98 22/32. The euro dropped 0.2 percent to $1.3022.
Thirty-year yields decreased five basis points to 2.96 percent, extending this week’s decline to 13 basis points. They rose more than 40 basis points in the two weeks ended Sept. 14.
Treasuries slid for the past two weeks as the ECB announced on Sept. 6 a plan to purchase bonds of troubled euro members to help contain market turmoil in the 17-nation region and Fed Chairman Ben Bernanke said last week the central bank will keep adding stimulus to the U.S. economy.
“There’s a vacuum of information and a lack of transparency on the euro-region’s rescue efforts, and that supports Treasuries,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “We think it is a temporary blip and that yields will continue to rise as more clarity comes.”
Ten-year yields will climb to 2 percent by year-end, according to Credit Agricole forecasts. The rate will probably end the year at 1.80 percent according to a Bloomberg survey of analysts’ estimates.
Thirty-year bonds led gains after Richmond Fed Bank President Jeffrey Lacker said late yesterday the shock from the credit crisis may hamper efforts to bring down U.S. unemployment.
“Monetary policy is simply unable to offset all of the ways in which various frictions impede the economy’s adjustment to various shocks,” Lacker said in remarks yesterday to the Money Marketeers of New York University.
The Fed said on Sept. 13 it will purchase $40 billion of mortgage bonds a month to pump money into the economy and boost employment. Lacker voted against the plan.
The U.S. jobless rate has been more than 8 percent for 43 months, prompting Bernanke to pledge stimulus in the form of bond buying until the labor market improves “substantially.”
New-home construction in the U.S. rose 2.3 percent in August to a 750,000 annual rate, from a revised 733,000 annual pace in July, according to the Commerce Department. A Bloomberg News survey of 85 economists before the report forecast new-home starts increased to 767,000. Building permits declined 1 percent, data showed.
Treasuries rose over the past two days on speculation it will take time for the Fed’s efforts to work.
New York Fed President William C. Dudley said yesterday the central bank’s new stimulus is vital for boosting “unacceptably slow” improvement in growth.
The Fed is in the process of exchanging shorter-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs.
The central bank is scheduled to buy today as much as $2 billion of securities maturing from February 2036 to August 2042 as part of the program, according to the website of the Fed Bank of New York.
Treasuries earlier pared an advance after the Bank of Japan unexpectedly increased its asset-purchase fund to 55 trillion yen ($697 billion) from 45 trillion to counter economic contraction.