Treasuries decline before U.S. sells $29 billion in seven-year notes

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.”

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