Treasuries rose as the World Bank lowered its forecast for global growth amid concern central banks are considering pulling back on stimulus measures, fueling demand for the relative safety of government debt.
Ten-year note yields fell the most in a week after the World Bank yesterday pared its projections for economic expansion in 2013 to 2.2% from a January estimate of 2.4%. The Federal Reserve meets June 18-19, when it will discuss its bond-buying program. The U.S. will sell $13 billion of 30-year bonds today, after demand declined at three- and 10-year note auctions this week.
“The No. 1 thing that today’s market shows you is that Treasuries remain an international asset class,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 21 primary dealers that trade with the Fed. “When you have global angst in risky assets, even if the U.S. isn’t doing that badly, people still move to Treasuries to find a safe haven.”
U.S. 10-year yields fell three basis points, or 0.03 percentage point, to 2.20% at 10:53 a.m. New York time, according to Bloomberg Bond Trader data. They slid earlier as much as seven basis points, the most since June 6. The price of the 1.75% security due in May 2023 rose 9/32, or $2.81 per $1,000 face amount, to 96 1/32.
Thirty-year bond yields declined three basis points to 3.34%.
The MSCI Asia Pacific Index of stocks dropped 2.3%, while the Standard & Poor’s 500 Index rose 0.4% after falling 0.3%.
U.S. yields have climbed this month as investors weighed whether the economy is strengthening enough for Fed Chairman Ben S. Bernanke to consider reducing bond purchases that have been used to keep borrowing rates low. Bernanke told Congress on May 22 the central bank’s policy-setting board could start scaling back its bond purchases in its “next few meetings” if the U.S. employment outlook shows sustainable improvement
The Fed is buying $85 billion of U.S. government and mortgage-backed securities each month to put downward pressure on borrowing costs. It’s scheduled to purchase as much as $3.5 billion of Treasuries today due from August 2020 to May 2023.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE Index was at 81.89 yesterday, after rising to 84.75 on June 6 and June 10, the highest level in almost a year. It has averaged 62.3 over the past 12 months.
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.