Treasuries declined for a second day as a report showed U.S. services industries expanded, reducing demand for the safety of fixed-income assets.
Benchmark 10-year notes dropped with German bunds as stocks rallied after China vowed to maintain its growth target and an industry report showed euro-area manufacturing and services contracted less than forecast in February. Data on March 8 will show U.S. employers added 160,000 jobs last month after an increase of 157,000 in January, according to analysts in a Bloomberg News survey. Yields touched a five-week low yesterday.
“The fact that you’re seeing some strong economic data both here and out of Europe is helping to push the market lower,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The market’s more focused on the jobs numbers.”
Benchmark 10-year yields rose two basis points, or 0.02 percentage point, to 1.89 percent at 10:15 a.m. in New York, according to Bloomberg Bond Trader data. They touched 1.83 percent yesterday, the lowest since Jan. 24, before rising. The price of the 2 percent note due in February 2023 fell 5/32, or $1.56 per $1,000 face amount, to 100 31/32.
The yield on similar-maturity German bunds increased two basis points to 1.44 percent.
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which covers about 90 percent of the economy, rose to 56 in February from the prior month’s 55.2, the Tempe, Arizona-based group said. The median forecast of 73 economists surveyed by Bloomberg was 55. Readings above 50 signal expansion, and estimates ranged from 50 to 56.3.
Volume Declines
Trading volume dropped yesterday to $183 billion, the lowest level this year and the fifth straight daily decline, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. Daily Treasury volume reached $491 billion on Feb. 1, the highest since August 2011. The average daily volume for the past year is $247 billion.
Treasury volatility as measured by the Bank of America Merrill Lynch MOVE index fell to 53.9 basis points yesterday, the lowest level since Jan. 23. The gauge, which tracks the outlook for swings in U.S. government debt rates, has averaged 66.6 basis points over the past year.
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, was 2.56 percentage points, versus an average of 2.2 percentage points over the past decade.
Fed Stimulus
An increase in Treasury yields may be limited as Federal Reserve policy makers signaled they are not about to close their doors on stimulus.
Fed Vice Chairman Janet Yellen said in a speech yesterday the central bank should continue its monthly bond buying while tracking the costs of the program. Chairman Ben S. Bernanke in congressional testimony last week defended the Fed’s bond purchases, saying the benefits of reducing borrowing costs and fueling growth outweigh any potential costs.
The central bank has kept its benchmark target for overnight lending in a range of zero to 0.25 percent since 2008.
“While we expect yields to rise if the strength of the economic recovery continues, the Fed’s dovish rhetoric suggested they are not about the taper the bond-buying program and that should some support the Treasuries,” said John Stopford, head of fixed income at Investec Asset Management in London.
The yield on the 10-year note is forecast to rise to 2.25 percent by the end of the fourth quarter, according to the median estimate of economists in a Bloomberg News survey.
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