Treasury yields indicate a gauge of traders’ expectations for inflation will increase as a government report showed the cost of living rose in February due to a jump in gasoline prices.
The difference between yields on 10-year Treasury notes and inflation-indexed securities, a measure of consumer prices over the life of the debt known as the break-even rate, is 2.59%. Benchmark 10-year yields climbed toward the most in 11 months before data analysts said will show industrial production grew and household confidence rose, adding to signs the economy is strengthening. U.S. bonds slid yesterday after a report showed initial claims for unemployment benefits fell.
“We are right around the level that economic fair value suggests so there’s not a lot of incentive to take a long term position,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “We’ve had very little response. It’s a sluggish morning.”
The spread between yields on 10-year Treasury Inflation Protected Securities and comparable notes was little changed at 9:05 a.m. New York, after touching 2.60%. It reached 2.61 percentage points on Feb. 14 and has climbed two basis points this week.
The consumer-price index rose 0.7%, a Labor Department report showed in Washington, with the biggest jump in gasoline prices in more than three years accounting for three- quarters of the advance. A retreat in fuel expenses this month signals inflation will hover around the Federal Reserve’s goal, giving the central bank more room to continue steps to spur growth and curb unemployment.
Fed Purchase
The Fed will buy as much as $5.75 billion of Treasuries today due from December 2017 to November 2018 in a program to bolster growth.
Manufacturing in the New York region expanded in March for a second month, another report showed.
Industrial production grew 0.4% in February after a 0.1 decline the previous month, another survey showed before a report due at 9:15 a.m. New York time. Further data are forecast to show consumer sentiment climbed to a four-month high.
Benchmark 10-year Treasury yields were little changed at 2.03%, according to Bloomberg Bond Trader data.
“The market has already priced in a positive scenario for the U.S. economy, that’s why yields are staying above 2%,” said Ralf Umlauf, an analyst at Landesbank Hessen- Thueringen in Frankfurt. “In the medium and long run, we think there will be stronger growth and pressure for higher Treasury yields.”
Jobless Claims
The 10-year yield will rise to 2.20% in six months, Umlauf predicted. A Bloomberg survey of forecasters predicts the rate will be 2.17% at the end of the third quarter and 2.32% at the end of the year.
First-time jobless claims unexpectedly fell by 10,000 to 332,000 last week, the fewest since mid-January, the Labor Department reported yesterday.
“Treasury yields at 2% show people expect improvement in the economy,” said Hideo Shimomura, who helps oversee the equivalent of $63.2 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest publicly-traded bank. “Inflation is still contained, but there’s a fear that it’s starting to rebound.”
Treasury securities due in a decade or more are at the cheapest level since 2011 relative to global peers with comparable maturities, according to the Bank of America indexes. Yields on Treasuries were 54 basis points higher than those in an index of other sovereign debt yesterday, the data showed. It was the most since August 2011.
The Treasury Department is scheduled to issue its monthly report on overseas holdings of U.S. assets. China was the largest foreign holder of Treasuries as of December with $1.2 trillion of the securities.
