Treasury yields touch one-week high as U.S. durable goods climb

Jobless Claims

A separate report showed jobless claims rose by 7,000 to 343,000 in the week ended July 20 from a revised 336,000 the prior period, the Labor Department said in Washington. The median forecast of 49 economists surveyed by Bloomberg projected 340,000. The retooling at carmakers and school closings typical during this time of year continued to influence the figures las week, a spokesman said as the data were released.

Purchases of new U.S. homes rose 8.3% in June to an annualized pace of 497,000, the highest level since May 2008, the government said yesterday.

The Fed, which has been buying $85 billion of bonds each month to put downward pressure on borrowing costs, will start trimming purchases in September, according to a separate Bloomberg survey of economists.

Volatility Rises

Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index was at 80.2 basis points yesterday, up from 72.62 on July 22, the least since May 24. The gauge rose to 117.89 on July 5, the highest since December 2010.

Treasury trading volume at ICAP Plc, the largest inter- dealer broker of U.S. government debt, was $345.9 billion yesterday, above this month’s average of $278.4 billion.

The Fed’s measure of traders’ forecasts for costs in the economy for the period from 2018 to 2023, known as the five-year five-year forward break-even rate, was at 2.59%. It has risen from 2.33% last month, which was the lowest since 2011. The average over the past decade is 2.75%.

“We expect the auction to go well,” said Richard Gilhooly, an interest rate strategist at TD Securities Inc. in New York. “They are at decent levels, at 2%. The market has cheapened up into supply.”

The seven-year notes scheduled for sale today yielded 2.03% in pre-auction trading, compared with 1.93% at the previous sale of the securities on June 27. Investors bid for 2.61 times the amount of debt offered last month, compared with the average of 2.65 for the 10 offerings through June.

Direct bidders, non-primary dealers buying for their own accounts, purchased 15.7% of the notes last month, the least in 11 months. Indirect bidders, which include foreign central banks, bought 46.4% of the securities, the most since August 2011.

Investors at the five-year auction yesterday bid for 2.46 times the amount of debt available, less than the 2.8 average of the prior 10 sales. A two-year sale on July 23 drew bids for 3.08 times the amount offered, compared with the average of 3.54 for the previous 10 auctions.

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