Trading volume has been increasing, with the amount changing hands through ICAP Plc, the largest inter-dealer broker of U.S. government debt, averaging $396 billion a day from the start of May through yesterday. That’s up from an average of $281 billion in the first four months of the year.
Treasuries briefly pared gains today after U.S. retail sales rose and jobless claims dropped. Sales increased 0.6% in May, the Commerce Department reported, exceeding a Bloomberg survey’s forecast for a 0.4% gain. Jobless- benefit claims fell last week by 12,000 to 334,000, Labor Department data showed.
The 30-year bonds being sold today yielded 3.34% in pre-sale trading, which would be the highest in an auction since March 2012, after drawing 2.98% at the May 9 sale. The May offering’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.53, versus an average of 2.58 at the past 10 auctions.
The $21 billion 10-year sale yesterday drew a bid-to-cover ratio of 2.53. It was the least since August. At an auction of $32 billion in three-year notes on June 11, the bid-to-cover ratio was 2.95, the smallest since December 2010.
Jim Rogers, the investor and author of the book “Street Smarts,” reiterated his view that the bull market in bonds is coming to an end, speaking at a conference in Kuala Lumpur. Benchmark 10-year yields declined from 15.8% in September 1981 to a record low of 1.38% in July of last year.
Dan Fuss, whose Loomis Sayles Bond Fund beat 97% of its peers in the past three years with 10% average returns, said he recently bought Treasuries as they were “pretty badly” oversold.
Fuss, who is based in Boston for Loomis Sayles & Co., said in an interview he expects yields to rise in the longer term, with the 10-year rate probably reaching 3.2% by the end of 2014.
Investors pulled $10.9 billion from U.S. bond mutual funds in the past week, the biggest redemption since October 2008, after speculation that the Fed may scale back its bond buying sent fixed-income markets lower.
Taxable bond funds suffered withdrawals of $8.7 billion and municipal bond funds lost $2.3 billion in the week ended June 5, according to an e-mailed statement from the Investment Company Institute, a Washington-based trade group. Investors withdrew $942 million from stock funds, the ICI reported.