Treasuries declined for a second day as reports showed euro-area manufacturing and services grew while a gauge of Chinese factory activity rose to an 18-month high in July, damping demand for the safest assets.
Benchmark 10-year note (CBOT:ZNU14) yields extended gains after a report showed U.S. jobless claims unexpectedly fell to the lowest level in more than eight years. A measure of bonds around the world extended its advance to the highest level in 14 months after the International Monetary Fund said yesterday the Federal Reserve has scope to keep interest rates near zero for longer than investors anticipate. The U.S. is set to auction $15 billion of Treasury Inflation Protected Securities today.
“These expensive levels in Treasuries make them vulnerable to things like equity-market valuations increasing and some good external market news as well,” said Orlando Green, a fixed- income strategist at Credit Agricole SA’s corporate and investment banking unit in London. “It’s been a good year for bonds. It’s contrary to what we were expecting.”
The U.S. 10-year yield rose three basis points, or 0.03 percentage point, to 2.50% at 8:33 a.m. New York time, according to Bloomberg Bond Trader data. The 2.5% note due May 2024 fell 9/32, or $2.81 per $1,000 face amount, to 100 100.
The 30-year yield also increased three basis points, to 3.29%. It slid to 3.24% on July 21, the lowest level since June 7, 2013.
The Bank of America Merrill Lynch Global Broad Market Index rose to the most since May 2013 yesterday. It’s heading for a seventh monthly gain in July, the longest winning streak since 2010. Bonds in the index have returned 4.6% on average this year as the biggest central banks pledge to keep borrowing costs at record lows. They fell 0.3% in 2013.
Treasuries gained 3.58% this year, after losing 3.4% last year, according to the Bloomberg US Treasury Bond Index.
Treasuries lost support today as a purchasing managers index for the euro-region’s manufacturing and services industries jumped to 54 this month from 52.8 in June, matching a three-year high reached in April. In China, a preliminary factory PMI from HSBC Holdings Plc and Markit Economics was at 52.0, topping the 51.0 median estimate of analysts in a Bloomberg News survey. Numbers above 50 indicate expansion.
Jobless claims fell by 19,000 to 284,000 in the week ended July 19, the fewest since February 2006 and lower than any economist surveyed by Bloomberg forecast, a Labor Department report showed.
The supply of bonds has surged over the past decade as governments borrowed to stimulate their economies and companies took advantage of investor demand for yield.
The Global Broad Market Index tracks 21,833 issues with a face value of $43.2 trillion. In July 2004, it comprised 16,409 issues for a face amount of $19.4 trillion.
Government bonds in the gauge include those sold by the U.S., Japan and Russia. Corporate issuers include Apple Inc. in the U.S. and Vodafone Group Plc in the U.K.
The Fed may keep interest rates near zero as inflation stays muted and a 2014 slowdown prolongs the labor-market recovery, the IMF said yesterday.
Fed Chair Janet Yellen said last week U.S. interest rates will probably stay low for a “considerable period” after the central bank ends the bond-buying program it has used to support the economy. The central bank may conclude its debt purchases after its October meeting, she said.
Traders see about a 45% chance the Fed will have raised its target for overnight lending between banks to at least 0.5% by the end of June from almost zero now, based on futures contracts.
European Central Bank President Mario Draghi said in June policy makers “will act swiftly” with further policy easing if required and the Bank of Japan maintained its record program of bond purchases at its July meeting.
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