Treasuries fell, pushing 10-year yields to the highest in five weeks, before the U.S. sells $29 billion in seven-year notes.
Benchmark notes dropped for a second day after the Federal Open Market Committee ended a policy meeting yesterday without saying whether it will continue with Treasury purchases after the expiration of its so-called Operation Twist in December. Stocks rallied and demand for safe assets waned as Treasuries remained lower after reports showed orders for capital goods stagnated and U.S. jobless claims showed limited labor market progress.
“The data is consistent with the same type of recovery we’ve been getting -- below trend,” said Steven Ricchiuto, chief economist in New York at Mizuho Securities USA, Inc., one of 21 primary dealers that trade Treasuries with the central bank. “The bond market sold off overnight.”
The U.S. 10-year yield rose five basis points, or 0.05 percentage point, to 1.84 percent at 9:53 a.m. New York time after reaching 1.85 percent, the highest since Sept. 17, according to Bloomberg Bond Trader prices. The 1.625 percent note maturing in August 2022 declined 15/32, or $4.69 per $1,000 face amount, to 98 2/32.
Stocks rose for the first time in three days, with the Standard & Poor’s 500 Index gaining 0.7 percent.
Price Swings
Volatility dropped to 67 basis points yesterday, below this year’s average of 72.4 basis points, according to the latest data available from Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options. It touched 57.5 basis points on Sept. 19, the least since May 7. The average during the past decade is 99.6 basis points.
U.S. government securities due in 10 years and longer have handed investors a 6.3 percent loss in the past three months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The current seven-year yield increased six basis points to 1.27 percent. Today’s auction will be the last of three note sales this week. The U.S. auctioned $35 billion of two-year debt on Oct. 23 and the same amount of five-year securities yesterday.
“The auction will go fine,” said David Ader, head of U.S. government bond strategy at CRT in Stamford, Connecticut. “In general, the markets are holding in here.”
Durable Goods
Bookings for non-defense capital goods excluding aircraft, considered a proxy for future business spending, were little changed after rising 0.2 percent in August, less than previously estimated, a Commerce Department report showed today in Washington. Demand for all durable goods climbed 9.9 percent last month, exceeding the median forecast of economists surveyed by Bloomberg and reflecting a rebound in airplane orders.
“Those were a weak set of numbers,” Ader of CRT said. “It is contributing more to a depressed willingness to buy strength than a desire to sell weakness.”
Fewer Americans filed first-time applications for unemployment benefits last week as the seasonal volatility at the start of the quarter wound down.
Jobless claims decreased by 23,000 to 369,000 in the week ended Oct. 20 from a revised 392,000 the prior period, the Labor Department reported today in Washington. The median forecast of 48 economists surveyed by Bloomberg called for a drop in claims to 370,000.
GDP Report
U.S. gross domestic product rose at a 1.9 percent annual rate in the third quarter after expanding at a 1.3 percent pace the prior three months, the median economist estimate showed before data from the Commerce Department tomorrow. That would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.
The Fed said the economy is still growing modestly and unemployment remains elevated as it maintained $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion.
The central bank is swapping short-term Treasuries in its holdings for longer-term securities to cap yields as part of its efforts. The central bank plans to purchase as much as $5.5 billion of notes due from November 2020 to August 2022 today, according to the Fed Bank of New York’s website.
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened one basis point to 2.49 percentage points. The average during the past decade is 2.17 percentage points.
Ten-year yields will climb to 2.06 percent by June 30, according to a Bloomberg survey.
