U.S. 10-year yields at almost 1-month low as housing starts fall

Treasury 10-year note (CBOT:ZNH14) yields traded at almost the lowest levels in a month as a report showed housing starts and building permits declined last month, reflecting an uneven economic recovery.

The difference between the yields on two-year notes and 10- year debt narrowed to the least seven weeks as a report forecast to show industrial production slowed in December. The Federal Reserve is scheduled to buy as much as $3 billion in Treasury notes as part of its debt-purchase program. Treasuries headed for a third weekly gain before Fed Bank of Richmond President Jeffrey Lacker speaks today.

“These numbers are saying that the recovery we thought was ready to explode is anemic, at best,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “The Fed is not going to do anything until they see the whites of the eyes of inflation. Higher rates may be put off into the distance.”

Ten-year yields fell one basis point, or 0.01 percentage point, to 2.83% as of 9:16 a.m. New York time, Bloomberg Bond Trader data show. The price of the 2.75% note due in November 2023 added 2/32, or 63% per $1,000 face amount, to 99 10/32. The yield reached 2.82% on Jan. 13, the lowest level since Dec. 11.

Global Bonds

The benchmark yield exceeded levels in 14 of 25 developed countries, according to data compile by Bloomberg. Securities in the Bloomberg U.S. Treasury Bond Index yielded 1.61% on average. The figure was 1.46% for the Bloomberg Global Developed Sovereign ex-US Bond Index.

Ten-year yields have fallen since reaching 3.05% on Jan. 2, a level unseen since July 2011. The Treasury Department sold benchmark notes last week at 3.009%, the highest auction yield since May 2011.

Demand for the debt narrowed the difference between two-and 10-year yields to 2.46 percentage points, touching the least since Nov. 29. The average during the past 12 months is 2.08 percentage points.

Housing starts fell 9.8% to a 999,000 annualized rate following November’s revised 1.11 million pace, which was the highest since November 2007, the Commerce Department reported in Washington. The median estimate of 83 economists surveyed by Bloomberg called for 985,000. Permits for future projects declined 3% to a 986,000 pace.

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