U.S. 10-year yield at almost two-month high before Fed updates

Treasury 10-year note yields traded at almost the highest level in two months before Federal Reserve Chairman Ben S. Bernanke testifies on the economy in Congress tomorrow.

U.S. government securities headed for their first monthly loss since January before St. Louis Fed President James Bullard and New York Fed President William C. Dudley speak today. Fed Bank of Chicago President Charles Evans said yesterday the economy has improved “quite a lot” and he would be amenable to the central bank slowing its asset purchases if he had confidence job growth would be maintained. The Fed publishes minutes tomorrow of its April 30 to May 1 policy meeting.

“People are wondering whether and if the chairman will move as some of the other Fed governors who are looking at tapering or ending QE,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “He’s been opposing that. The market is buying insurance on the potential that he could be more hawkish.”

U.S. 10-year yields were at 1.97 percent as of 9:08 a.m. New York time after rising to 1.98 percent on May 15, the highest since March 15. The price of the 1.75 percent note due in May 2023 was at 98 1/8.

Short Bets

Investors in Treasuries remained short for the fifth straight week, betting that the prices of the securities will drop, according to a survey by JPMorgan Chase & Co.

The proportion of net shorts was at 16 percentage points in the week ending yesterday, according to JPMorgan. The figure is down from 17 percentage points in the previous week.

The percent of outright longs remained at 13 percent, while outright shorts, or bets the securities will fall in value, slipped to 29 percent from 30 percent, the survey reported.

Investors raised neutral bets to 58 percent from 57 percent, the survey reported.

The U.S. central bank is scheduled to buy as much as $3.5 billion of securities maturing between August 2020 and May 2023 today, according to the New York Fed’s website. The bank is purchasing $85 billion of government and mortgage debt each month to cap borrowing costs and help the economy.

“Currently, we have the appropriate monetary policy in place,” Evans said in a speech in Chicago yesterday. “The U.S. economy seems to be performing pretty well right now.”

Evans said he expects to see “self-sustaining growth” at “escape velocity” in 2014.

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