Treasuries Fall Before U.S. Sells $58 Billion of Debt This Week

By Anchalee Worrachate and Netty Ismail  

Treasuries fell, with 10-year yields climbing from near the lowest level in three months, before the U.S. sells $58 billion of debt this week.
The U.S. plans to auction $24 billion of three-year notes today, $21 billion of benchmark 10-year securities tomorrow and $13 billion of 30-year bonds the following day, in its first sale of coupon-bearing debt since Dec. 24. Treasury 10-year yields dropped below 2 percent last week for the first time since October, while global bond rates declined to a record as tumbling oil prices cut the inflation outlook.
“The Treasury market has come a long way since the start of this year and is taking a pause ahead of big supply,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Eventually, strong U.S. growth outlook will show up in bond yields.”
The 10-year yield rose two basis points, or 0.02 percentage point, to 1.97 percent as of 6:28 a.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent note
due November 2024 fell 6/32, or $1.88 per $1,000 face amount, to 102 17/32. The rate dropped to 1.89 percent on Jan. 6, the lowest since Oct. 15.
The yield on 30-year bonds climbed two basis points to 2.55 percent after falling by almost 30 basis points in the past two weeks. Two-year rates were little changed at 0.57 percent.
Trading in Treasuries opened in London after being shut in Japan today for a holiday. U.S. government securities returned 1.3 percent in January through last week, after gaining 6.2 percent in 2014, according to the Bloomberg U.S. Treasury Bond Index. (BUSY)

Oil Prices

Crude oil dropped below $50 in London last week for the first time since 2009 as OPEC members said they wouldn’t reduce output to bolster prices.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities shrank to 1.54 percentage points on Jan. 7, the least since September 2010. The gauge tracks expectations for consumer prices over the life of the debt. It was at 1.61 percentage points today.
Policy makers suggested in minutes of the Fed’s December meeting published last week that any drag in oil prices may only be temporary and not enough to derail the central bank’s plans to raise interest rates from near zero this year.
“The bond market in the last couple of months suggested people are extrapolating a low oil price to mean economic slowdown, but we disagree,” said Mark Dowding, co-head of investment-grade bonds and partner at BlueBay Asset Management. “Ultimately the bond market will follow the Fed and the Fed will be following the data. Interest rates could rise as early as June. We are short U.S. duration,” he said, indicating he reduced his investment in Treasuries to avoid price declines when interest rates rise.

Rate Bets

There’s a 48 percent chance the Fed will raise its benchmark rate to at least 0.5 percent by September, futures data compiled by Bloomberg show. The probability was 57 percent before the Labor Department’s monthly payroll report on Jan. 9 showed average hourly earnings of workers unexpectedly dropped 0.2 percent last month.
Consumer prices fell 0.4 percent in December from the previous month, when they declined 0.3 percent, according to a Bloomberg News survey of economists before the data is released Jan. 16. From a year earlier, inflation slowed to 0.7 percent from 1.3 percent, a separate survey showed.
ECB President Mario Draghi is likely to unveil large-scale bond purchases, known as quantitative easing, at the ECB’s next policy meeting on Jan. 22, UBS Group AG Chairman Axel Weber said in a Bloomberg Television interview from Shanghai.