Treasury yields rise from lowest in week before Fed amid Crimea

Treasury yields (CBOT:ZNM14) rose from the lowest in more than a week before the Federal Reserve begins a two-day meeting tomorrow that analysts said will see policy makers further scale back bond-purchase stimulus.

U.S. debt dropped, after posting the biggest advance in two months last week, even as the U.S. and European Union warned Russia it will face sanctions if it annexes Crimea. The Fed is forecast on March 19 to cut its monthly stimulus bond purchases to $55 billion while providing guidance on the future of interest-rate increases. A measure of general business conditions in the New York area rose as U.S. industrial production climbed the most in six months.

“They’re going to taper down to $55 billion -- the more important element will be forward rate guidance,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 22 primary dealers that trade with the Fed. “Manufacturing over the last few months showed points of weakness, mostly being attributable to weather. We’re starting to see signs of stabilization.”

Benchmark 10-year yields rose one basis point, or 0.01 percentage point, to 2.67% at 10:54 a.m. New York time after dropping 13 basis points last week, the most since the period ended Jan. 10, Bloomberg Bond Trader data showed. They touched 2.61% on March 14, the lowest since March 4. The 2.75% note due February 2024 dropped 3/32, or 94 cents per $1,000 face amount, to 100 23/32.


Manufacturing, Production

The Fed Bank of New York’s Empire Manufacturing index climbed to 5.61 this month, from 4.48 in February. Readings of greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 55 economists called for a reading of 6.5.

The 0.8% gain at manufacturers followed a revised 0.9% slump in the prior month that was the biggest since May 2009, figures from the Fed showed. The median forecast called for a 0.3% advance. Total industrial production rose 0.6%, more than projected.

Economists and strategists in a Bloomberg News survey lowered their forecasts for how much the 10-year yield will increase at year-end. The rate will rise to 3.35% in the fourth quarter, according to a survey conducted March 7-12, down from 3.40% in a survey last month.

Hedge-fund managers and other large speculators increased their net-short positions in 10-year note futures in the week ending March 11, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets that prices will fall, outnumbered long positions by 118,210 contracts, the most since Feb. 11, on the Chicago Board of Trade.

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