Treasuries decline as U.S. data support case for Fed tapering

Treasuries fell, pushing 10-year yields toward the highest since 2011, as data showing gains in U.S. durable-goods orders, home prices and consumer confidence boosted the case for the Federal Reserve to slow bond purchases.

Government securities stayed lower after the U.S. sold $35 billion of two-year debt at a yield of 0.430%, the highest in two years. Ten-year yields rose for a seventh day, the longest since March 2012. Fed Chairman Ben S. Bernanke said last week policy makers may reduce bond buying under their quantitative-easing stimulus strategy this year and end it in mid-2014 if economic growth is in line with their projections.

“You’re starting to see some data today that represents the view the Fed has in their forecasts,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “If you continue to see strong economic data like today, the assumption is that the Fed will be closer to tapering.”

The U.S. 10-year yield climbed four basis points, or 0.04 percentage point, to 2.58% at 3:29 p.m. New York time after falling six basis points earlier to 2.48%. It touched 2.66% yesterday, the highest since August 2011. The price of the 1.75% security due in May 2023 declined 11/32, or $3.44 per $1,000 face amount, to 92 25/32.

Current two-year note yields increased two basis points to 0.4%. They reached 0.43% yesterday, the highest since July 2011. Thirty-year bond yields rose five basis points to 3.6%.

Relative Strength

A technical gauge signaled the increase in 10-year yields may have been too rapid. The 14-day relative-strength index, a monitor of momentum, rose to 79, exceeding the 70 level that indicates the yields may be poised to change direction.

Treasuries have lost 1.9% in June and dropped 2.9% this year, according to the Bloomberg U.S. Treasury Bond Index. They have declined 2.6% this quarter, a Bank of America Merrill Lynch index shows.

Bonds rose earlier as investors sought safer assets amid speculation a credit squeeze in China will slow growth. They reversed gains after China’s central bank said it will keep money-market rates at a “reasonable” level and reports in the U.S. showed gains in the world’s largest economy.

Bookings for U.S. goods meant to last at least three years increased 3.6% for a second month, the Commerce Department reported. The median forecast of economists in a Bloomberg survey was for a 3% increase. Excluding transportation equipment, where demand is volatile month to month, orders advanced 0.7%, also topping projections.

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