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

Treasuries traded in the tightest range in two weeks as Federal Reserve efforts to depress long- term interest rates limited a rise in yields even after a report showed September retail sales beat forecasts.

Yields on the benchmark 10-year note pared gains after the Fed bought $5 billion of Treasuries maturing from October 2018 and August 2020 in an effort to reduce borrowing costs and counter recession risks. Treasuries rose earlier after Bank of Israel Governor Stanley Fischer said the world is “awfully close” to a recession, as he backed the Fed’s increase in bond purchases.

“The market is trading as if it refuses to fight the Fed,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “While we had a better-then-expected retails sales report, the market seemed unable to find any directional bias. Volumes were on the light side.”

The benchmark 10-year note yield rose one basis point, or 0.01 percentage point, to 1.66 percent at 3:38 p.m. New York time, after dropping nine basis points last week, according to Bloomberg Bond Trader prices. The yield traded within a range of four basis points, the least since Oct. 1 and the seventh tightest this year. The 1.625 percent security due in August 2022 fell 3/32, or 94 cents $1,000 face value, to 99 20/32.

Retail sales in the U.S. rose 1.1 percent last month after a revised 1.2 percent increase the prior month that was the biggest since October 2010 and larger than previously reported, Commerce Department figures showed today in Washington. The median forecast of 77 economists surveyed by Bloomberg called for a 0.8 percent rise.

Fed Buying

“The data is across-the-board better than expected,” said Steven Ricchiuto, chief economist in New York at Mizuho Securities USA, Inc., one of 21 primary dealers that trade Treasuries with the Fed. “We’ve been in the same trading range for the last couple of weeks. We’ll remain in the same trading range, 1.65 percent to 1.75 percent.”

The Fed purchased Treasuries as part of its program known as Operation Twist, in which it is replacing $267 billion of short-term debt in its portfolio with longer-term Treasuries.

The Fed announced Sept. 13 it will keep its main interest rate at almost zero until at least mid-2015 and buy $40 billion of mortgage debt every month under its quantitative-easing program in an effort to stimulate economic growth and create jobs. The U.S. unemployment rate unexpectedly fell to 7.8 percent last month.

The so-called break-even rate, which measures how much traders anticipate consumer prices will rise over the life of the debt, for 30-year securities was 2.44 percentage points after touching 2.42 percentage points on Oct. 12, the lowest since Oct. 1.

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