Treasuries fell, with 10-year yields rising from the lowest level in two months, before a government report that economists said will show factory orders rebounded in February.
Benchmark yields climbed after slipping below their 100-day moving average. The Federal Reserve’s gauge of inflation expectations dropped to the lowest level in a month before a government report this week that economists said will show the U.S. is adding jobs without driving wages higher. Fed Bank of Minneapolis President Narayana Kocherlakota will speak today on monetary policy.
“There has been a divide in the market between the recovery we see in the States versus global growth and European concerns, and that is keeping us near this level in yields,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 21 primary dealers that trade with the Fed. “Everyone is waiting for the payroll number to give us some direction. Until then we will continue to chop around in this range -- the range as I see it is 1.85 to 2.09.”
The 10-year yield rose three basis points, or 0.03 percentage point, to 1.86% at 9:31 a.m. New York time, according to Bloomberg Bond Trader prices. It earlier dropped to 1.82%, the lowest since Jan. 24, below the 100-day moving average at 1.83%. The 2% note due in February 2023 fell 7/32, or $2.19 per $1,000 face amount, to 101 9/32.
The 10-year yields will climb to 2.31% by year-end, according to a Bloomberg survey of economists.
Treasuries due in a decade or more have been trading at almost the cheapest level in 19 months relative to global peers with comparable maturities, according to Bank of America Merrill Lynch bond indexes. Yields on the Treasuries reached 57 basis points higher than those in an index of other sovereign debt on March 25, the most since August 2011, the data showed. The spread was 51 basis points yesterday.
Trading volume fell 31% yesterday to $165.3 billion, the lowest level since Dec. 31, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. It touched a 2013 high of $491 billion on Feb. 1. Average daily volume this year is $282.6 billion.
Factory orders rose 2.9% in February, after dropping 2% the previous month, according to a Bloomberg survey of economists before the Commerce Department data. A separate report today is forecast to show vehicles sales were little changed in March.
U.S. employers hired 199,000 workers in March, after adding 236,000 in February, according to another Bloomberg survey before the Labor Department report on April 5.
Treasury 10-year yields climbed March 8 to 2.08%, the highest since April 5, 2012, after the Labor Department reported February’s employment increase and a drop in the unemployment rate, to 7.7% from 7.9%.
“The question is whether the data is starting to turn,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “This is a crucial area at about the 100-day moving average on 10-year yields. That’s what so far has stopped the rally.”
U.S. government securities lost investors 0.1% this year as of yesterday, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index of stocks gained 6.2% including reinvested dividends.
Treasuries rose yesterday after a measure of manufacturing was weaker than economists predicted. The Institute for Supply Management’s factory index fell to 51.3 in March from 54.2 the month before, boosting demand for the safest assets.
“ISM is still over 50 and consistent with an expansion,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, wrote in a note to clients. Payrolls and unemployment data “will be the first-order tradable events,” he wrote.
The Fed is currently purchasing $85 billion of Treasury and mortgage debt a month as it seeks to support the economy by capping yields. It is scheduled to purchase up to $1.75 billion in notes maturing between February 2036 and February 2043.
“Monetary policy is currently not accommodative enough,” Kocherlakota said in a speech March 27 in Edina, Minnesota. He said he favored easing policy by reducing to 5.5% from 6.5% the threshold at which the Fed will consider raising the main interest rate.
The central bank’s measure of traders’ outlook for inflation from 2018 to 2023, known as the five-year forward break-even rate, dropped to 2.71% as of the most recent figures on March 28, the lowest since Feb. 25.