U.S. 30-year yields reach one-month high before Fed ends meeting

Treasury 30-year bond yields touched the highest level in more than a month before the Federal Reserve concludes a two-day policy meeting at which it’s forecast to decide to buy more Treasuries to spur the economy.

Ten-year yields reached a two-week high before the U.S. sells $21 billion of the securities today amid optimism lawmakers are inching closer to a budget agreement. President Barack Obama reduced his demand for tax increases as he and House Speaker John Boehner traded offers yesterday to try to avoid more than $600 billion in automatic tax increases and spending cuts.

“There’s a lot of 10-year supply, and I assume people want to push it down more before the auction,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “The Fed is going to do something because they feel it’s necessary.”

The 30-year yield increased two basis points, or 0.02 percentage point, to 2.86 percent, the highest since Nov. 7, at 10:34 a.m. New York time, according to Bloomberg Bond Trader prices. The price of the 2.75 percent bond due in November 2042 declined 11/32, or $3.44 per $1,000 face amount, to 97 26/32.

The benchmark 10-year note yield advanced one basis point to 1.67 percent, the highest since Nov. 27.

The Fed’s Operation Twist program, in which it sells shorter-maturity Treasuries in its holdings and buys longer- dated sovereign debt, is set to expire at the end of this month. The central bank also is purchasing $40 billion in mortgage bonds each month to spur the economy.

Today’s Auction

The notes to be sold today yielded 1.675 percent in pre- auction trading, matching the yield at the previous sale on Nov. 7. The record auction low, 1.459 percent, was reached at the July offering. The Treasury is due to announce today’s results at about 11:30 a.m. Washington time.

Investors bid for 2.59 times the amount of available debt at last month’s 10-year note sale, down from 3.26 on Oct. 10. Indirect bidders, a category that includes foreign central banks, bought 39.7 percent of the securities at the November offering, versus 41.4 percent the month before.

The U.S. sold $32 billion of three-year notes yesterday at a record-low yield of 0.327 percent. The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 3.36 from 3.41 in November. The government is scheduled to auction $13 billion of 30-year bonds tomorrow.

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