Treasuries were little changed amid speculation the Federal Reserve won’t signal a change next week in its program of $85 billion a month in bond purchases.
Benchmark 10-year notes fluctuated as a measure of July consumer confidence exceeded forecasts. U.S. debt is poised to end two weeks of gains after the U.S. sold $99 billion of securities over the previous three days, including seven-year debt at the highest yield since July 2011. Analysts predict data next week will show American home prices rose at the fastest pace in seven years in May and the unemployment rate dropped this month.
“We might be seeing a little risk-off sentiment in here,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “There’s a lot of event risk here and there’s no compelling reason to sell the market.”
The U.S. 10-year note yields were little changed at 2.57% at 10:51 a.m. in New York, according to Bloomberg Bond Trader data. The price of 1.75% note maturing in May 2023 was at 92 29/32. The yield has increased nine basis points this week.
Treasuries handed investors a loss of 0.2% since the end of June, with the securities poised for a third monthly decline, the Bloomberg U.S. Treasury Bond Index shows. The MSCI World Index of shares has returned 5.9% in July, including reinvested dividends.
The Thomson Reuters/University of Michigan final index of U.S. consumer sentiment increased to 85.1 in July from 84.1 the prior month. The median forecast in a Bloomberg survey called for 84 in the final July gauge after a preliminary reading of 83.9.
The S&P/Case-Shiller index of U.S. home prices rose 12.4% in May from a year earlier, which would be the biggest gain since February 2006, a separate Bloomberg survey showed before the report on July 30. The U.S. jobless rate fell to 7.5% in July from 7.6% in June, while payrolls climbed by 184,000, according to economists before the Labor Department releases the figures on Aug. 2.
“Even if the headline payroll gain is near consensus, the market is not accounting for the risk of a sudden drop in the unemployment rate,” Barclays Plc strategists led by Rajiv Setia in New York, wrote in a research note. “Investors should brace themselves for the likelihood of a further selloff.”
Yield on 10-year notes are likely to climb faster than those on 30-year bonds, the analysts forecast.
Treasury trading volume at ICAP Plc, the largest inter- dealer broker of U.S. government debt, increased to $352 billion yesterday, the highest level since July 17 and above this year’s average of about $320 billion.
Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index increased to 82.6 yesterday from 80.2 the previous day. The gauge has fallen from 117.89 on July 5, which was the highest since December 2010.
The seven-year notes auctioned yesterday drew bids for 2.54 times the $29 billion offered, the lowest since May 2009. The securities were sold at a high yield of 2.026%, up from 1.932% at the previous auction on June 27. Investors submitted a below-average number of bids at the $35 billion offerings of two-year notes on July 23 and five-year notes on July 24.
“Demand was a little bit on the tepid side” at the auctions, said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “The market is preparing itself for a tapering at some point.”
The Fed is scheduled to buy as much as $1.75 billion of Treasuries maturing in February 2036 to May 2043 today as part of its quantitative-easing program intended to stimulate growth through capping borrowing costs.
The Fed, which has been buying $85 billion of bonds each month, will probably start trimming purchases in September, according to a Bloomberg News survey.
The Fed’s Open Market Committee next meets to review policy on July 30-31. The central bank has kept its target for overnight bank lending in a range from zero to 0.25% since December 2008.
The FOMC said in a June 19 statement that leaving the federal funds rate in that range “will be appropriate at least as long” as unemployment remains above 6.5% and the forecast for inflation in one-to-two years doesn’t exceed 2.5%. Chairman Ben S. Bernanke said on July 17 the jobless rate isn’t the only measure to labor-market health.