Treasury notes are near cheapest in two years relative to stocks

All eyes on economy

Treasuries were near the cheapest level in two years relative to U.S. stocks as investors weigh whether the world’s largest economy is growing fast enough to prompt the Federal Reserve to taper monetary stimulus.

Ten-year yields were set for a weekly decline before Fed Governor Jeremy Stein speaks today. Yields fell for a second day yesterday when New York Fed Bank President William C. Dudley said policy makers may prolong asset purchases. Rates on 10-year Treasury notes exceeded the estimated dividend yield on the Standard & Poor’s 500 Index by 41 basis points on June 25, the most since August 2011, and was at 31 points yesterday, according to data compiled by Bloomberg.

“Treasury yields have risen too much,” said Makoto Suzuki, a senior bond strategist at Okasan Securities Co. in Tokyo. “The stock market appears to be too optimistic about the U.S. economic outlook.”

The 10-year yield was little changed at 2.48 percent as of 9:43 a.m. in Tokyo. It has declined five basis points since June 21, poised for the biggest weekly slide since the period ended April 5. The 1.75 percent security due in May 2023 traded at 93 20/32, according to Bloomberg Bond Trader prices.

The yield on Japan’s benchmark 10-year bond fell one basis point to 0.825 percent in Tokyo.

The U.S. 10-year yield has risen 35 basis points this month and jumped 63 basis points this quarter, the biggest advance since December 2010.

A report today is forecast to show U.S. consumer confidence was better than initially estimated in June. The Thomson Reuters/University of Michigan index of consumer sentiment was at 83 in June, compared with a prior reading of 82.7 for the month, according to the median estimate of economists in a Bloomberg News survey. The gauge was still lower than the six- year high of 84.5 reached in May.

The MNI Chicago Report’s business barometer fell to 55 in June from 58.7 the previous month, according to a separate poll, remaining above the 50 level that signals expansion.

www.bloomberg.com

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