Treasury yields rise from 3-week low on services, jobs reports

‘All Doubts’

The Mortgage Bankers Association’s index jumped 16.6 percent in the period ended Sept. 28 from the prior week to reach the highest point since April 2009, the Washington-based group said today. Purchase applications rose 3.9 percent and refinancing surged 19.6 percent.

Treasuries pared losses after Spain’s Economy Minister Luis de Guindos said today at a press conference in Madrid that the country won’t recover unless “all doubts about the future of the euro are answered.”

The 30-year Treasury bond gained yesterday after Spanish Prime Minister Mariano Rajoy said he has no plans to request financial assistance in the near term.

“There’s an underpinning to Treasuries from the European sovereign-debt crisis,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “That’s an ongoing issue.”

‘Economic Uptick’

Volatility in the Treasury market as measured by the Merrill Lynch MOVE index was 60.4 yesterday, compared with an average of 60.33 since Sept. 14, the day after the Federal Reserve said it would buy $40 billion a month of mortgages until central-bank policy makers see an environment described by Chairman Ben S. Bernanke as an “ongoing, sustained improvement in the labor market.” The central bank also said it will probably hold the federal funds rate near zero at least through mid-2015.

“The reiteration that the Fed was going to keep rates low even into the face of an economic recovery is not all that bullish for the back-end of the market,” said Scott Graham, head of government-bond trading in Chicago at Bank of Montreal’s BMO Capital Markets unit, one of the 21 primary dealers that trade with the Fed. “You’ve got stronger housing, stronger employment data and then a stronger ISM. There’s a real fear that if there’s any kind of economic uptick that the inflation story will be very negative for the back end of the market.”

Fed Buys

The difference between 10-year yields on Treasury Inflation-Protected Securities and conventional U.S. government debt widened to 2.50 percentage points compared with 2.38 percentage points on Sept. 12. The difference, known in the bond market as the break-even rate of inflation, represents bond traders bets for the rate of acceleration in consumer prices during the lives of the securities.

The Fed purchased $4.71 billion of securities maturing from October 2018 to August 2020 today as part of its program to swap shorter-term Treasuries in its holdings with those due in six to 30 years, according to Fed Bank of New York’s website.

Bloomberg News

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