Treasuries trade in tightest range in 2 weeks as Fed buys debt

Volatility, Volume

Volatility reached 61.4 basis points today, below this year’s average of 72.6 basis points. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, touched 57.5 basis points on Sept. 19, the least since May 7. The average over the past decade is 102.1 basis points.

Treasury volume reported by ICAP Plc, the largest inter- dealer broker of U.S. government debt, dropped 31 percent Oct. 12 to $195 billion, from $284 billion the previous day. It has averaged $242 billion in 2012. It touched a high this year of $464 billion in September.

The U.S. will sell $7 billion in 30-year Treasury Inflation Protected Securities on Oct. 18. At the previous auction of the debt on June 21, the U.S. sold $7 billion of the securities at a record low yield of 0.520 percent.

‘Pretty Slow’

Treasuries declined as Fischer said in an interview in Tokyo with Bloomberg Television airing today that, while there has been “a lot of progress made” to improve the global economy, its impact hasn’t materialized.

“It’s pretty slow right now,” he said. “Europe is technically in a recession, the U.S. is predicting less than 2 percent growth for the next few months.”

The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.89 percent today, the least expensive since Oct. 8. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for the past 10 years is 0.44 percent. The all-time low was negative 1.02 percent on July 24.

Yields indicate growing demand for debt outside the Treasury market.

The difference between two-year interest-rate swaps and same-maturity Treasury yields narrowed to as little as 10.5 basis points on Oct. 12, the least since March 2010.

Investors use swaps to exchange fixed and floating interest-rate obligations. The spread between the fixed component and the Treasury rate narrows as demand for higher- yielding assets increases.

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