Treasuries declined before the government sells $32 billion of three-year notes, the first of three auctions of coupon-bearing debt this week totaling $72 billion.
Ten-year yields rose for a second day as the U.S. will sell $24 billion of the securities tomorrow and $16 billion in 30-year bonds on Feb. 14. The Federal Reserve purchased $3.3 billion of securities maturing between February 2020 and November 2022 today as part of its plan to bolster the economy.
“People are kind of sitting there, frozen,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “Everybody thinks rates are bound to go up at some point; it’s not come about yet. People are inclined to stay neutral until they get a better sense of the big direction.”
The benchmark 10-year note yield rose one basis point, or 0.01 percentage point, to 1.98% as of 11:02 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625% note due in November 2022 decline 3/32, or 94 cents per $1,000 face amount, to 96 29/32. The yield climbed to 2.06% on Feb. 4, the highest level since April 12.
Investors in Treasuries raised bets to the highest level since 2011 that the prices of the securities will drop. The proportion of net shorts was at 19 percentage points in the week ending yesterday, the most since July 5, 2011, according to JPMorgan Chase & Co., up from eight percentage points the week ending Feb. 4.
The percent of outright shorts, or bets the securities will fall in value, rose to 30%, the most since June 13, 2011, from 21% the previous week, according to the survey. The percent of outright longs dropped to 11%, from 13% the previous week, the survey said. Investors cut neutral bets to 59% from 66%, the survey reported.
Volatility in Treasuries dropped yesterday to 60 basis points, close to the 59.9 basis points reached on Feb. 7, the lowest level in two weeks, according to Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options.
The measure reached 51 basis points on Dec. 3, the lowest level of price swings since the gauge begin in April 1988. It hit a 2012 high of 95.4 basis points on June 15. Volatility climbed to 264.6 basis points in October 2008 as the financial crisis intensified.
Treasury trading volume fell yesterday to $201 billion, the lowest level since Jan. 7, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. Daily volume averaged $240 billion in 2012
The three-year notes scheduled for sale today yielded 0.42% in pre-auction trading, compared with 0.385% at the previous auction of the securities on Jan. 8. The record-low auction yield was 0.327% in December.
Investors submitted orders to buy 3.62 times the amount of available debt last month, versus 3.36 times in December. The government is also scheduled to sell $24 billion of 10-year notes tomorrow and $16 billion of 30-year bonds on Feb. 14.
“The auction today should come and go, but the market doesn’t have a lot to spark it right now,” said Scott Sherman, an interest-rate strategist at Credit Suisse Group AG in New York, one of 21 primary dealers that trade directly with the Fed. “We’ve moved to a new range, and that is it”
Treasury three-year notes have handed investors a loss of 0.02% this year, according to Bank of America Merrill Lynch indexes. Ten-year notes declined 1.6% and 30-year bonds slid 3.9%, based on the data.
Economists said a government report tomorrow will show U.S. retail sales increased for a third month in January. U.S. retail sales increased 0.1% last month after a 0.5% advance in December, according to the median forecast of economists surveyed by Bloomberg News before tomorrow’s Commerce Department report.
President Barack Obama will deliver his State of the Union address today as he attempts to persuade lawmakers and voters that his plan to revive growth and bring down unemployment will succeed.
“I’m going to be talking about making sure that we’re focused on job creation here in the United States of America,” he said last week to House Democrats at a meeting in Virginia.
The 10-year note will yield 1.97% at the end of June and 2.24% by Dec. 31, according to the weighted average forecast of economists in a Bloomberg survey.