Treasuries decline before debt sale, Federal Reserve Beige Book

Yellen Speaks

U.S. unemployment declined to 7.8 percent in September from 8.1 percent the month before, the Labor Department reported Oct. 5. Existing-home sales and retail sales were both stronger in August than analysts projected, industry and government reports showed last month.

Yellen said in Tokyo that if the Fed succeeded in rallying the U.S. economy then the whole world would win. While acknowledging different monetary policies affect capital flows and currency values, she said the Fed is not the main factor and governments have tools of their own to protect their economies.

The dollar will strengthen as U.S. growth outpaces its developed-nation counterparts, say nine of the 10 forecasters with the lowest margins of error in the six quarters ended Sept. 28 as measured by Bloomberg.

The Fed, which purchased $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 in two rounds of purchases known as quantitative easing, announced in September a third effort in which it is buying $40 billion of mortgage debt a month until the economic recovery is well established. It also began its Operation Twist program to replace shorter-term debt in its portfolio with longer-term securities and put downward pressure on long-term borrowing costs.

Technical Analysis

Thirty-year yields are poised to rise further, according to DZ Bank AG, citing the moving average convergence/divergence pattern, or MACD, which tracks the difference between a shorter- and a longer-term moving average, generating buy and sell signals when they cross. The lines cut across each other today.

“This indicates that the bias will be toward higher yields in coming days and possibly weeks,” said Andy Cossor, the Hong Kong-based market strategist at DZ Bank, Germany’s fourth- largest lender. “The yield lows for the long bond for this year have been seen.”

The so-called MACD line is calculated by subtracting the 26-day exponential moving average from the 12-day exponential moving average. The second indicator, called the signal line, is a nine-day exponential moving average of the MACD.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

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