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

Economic Pace

Output at factories, mines and utilities climbed 0.3% after a revised 1% increase in November, figures from the Federal Reserve showed in Washington. The gain matched the median forecast of economists in a Bloomberg survey.

“Treasuries have done well as soft patches in economic data suggested growth may not be as strong as some people expected,” said Alessandro Giansanti, a senior fixed-income strategist at ING Bank NV in Amsterdam. “Yields rose a long way late last year and the market appeared to have some correction which I expect to be temporary.”

The economic data issued this month have been uneven. The economy added 74,000 jobs in December, the Labor Department said Jan. 10, versus a gain of 197,000 projected by the Bloomberg News survey. Retail sales exceeded forecasts, a Jan. 14 report showed.

The consumer price index increased 1.5% in December from the year before, the fastest pace since August, a government report showed yesterday. It is still less than the average for the past decade of 2.4%.

Inflation Reading

After subtracting the pace of consumer-price increases, 10- year Treasuries yielded 1.34%, up from zero in March. The average during the past decade is 1.08%.

Ten-year yields will climb to 3.40% by year-end, based on a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.

Lacker said on Jan. 10 that the slump in job growth last month didn’t signify a major shift in the labor market and he “would expect a similar reduction in pace to be discussed at the upcoming meeting.” He dissented against continuing the purchases known as quantitative easing when he was a voter on the Federal Open Market Committee in 2012.

The Fed said in December it will cut its monthly debt purchases, which focus on mortgage securities and longer-term Treasuries, to $75 billion from $85 billion starting this month. The policy committee reaffirmed its view that the target for the federal funds rate that banks charge each other on overnight loans will stay at almost zero at least as long as the unemployment rate is more than 6.5%, especially if inflation stays below its 2% goal.

Unemployment was 6.7% in December. The Fed’s preferred measure of inflation was 0.9% for the latest reading in November.

www.bloomberg.com

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