Treasuries Decline as Volatility Drops Before Bernanke’s Speech
Bloomberg: Treasury 10-year notes fell before Federal Reserve Chairman Ben S. Bernanke speaks today and as bond volatility dropped to a six-month low, sapping demand for longer-maturity U.S. debt.
Benchmark yields rose from the lowest in more than a week before a report tomorrow that economists said will show retail sales increased in October. The Merrill Lynch MOVE Index, a measure of price swings, slid to 58.31 yesterday, approaching the record of 48.87 set on May 9. Bernanke is scheduled to speak at 7 p.m. in Washington. Vice Chairman Janet Yellen, in her confirmation hearing last week to be the next Fed chairman, said she’ll ensure stimulus isn’t removed too soon.
“Bernanke and Yellen are both dovish and we expect more of the same from him today,” said Soeren Moerch, head of fixed-income trading at Danske Bank A/S in Copenhagen. “Tapering will happen, but we expect the Fed to communicate clearly to the public to how and when. That will benefit higher-yielding assets and cause the Treasury curve to steepen further,” he said, referring to an increasing yield premium for longer-dated securities.
Benchmark 10-year yields rose two basis points, or 0.02 percentage point, to 2.69 percent as of 10:53 a.m. London time, according to Bloomberg Bond Trader prices. Yields fell earlier today to 2.66 percent, the least since Nov. 8. The 2.75 percent note due in November 2023 dropped 5/32, or $1.56 per $1,000 face amount, to 100 17/32.
After sending 10-year Treasury yields more than a percentage point higher from their 2013 low by fueling taper expectations in May and June, Fed officials are weighing when to reduce debt purchases that have swelled their balance sheet to a record $3.91 trillion.
China Plans
The People’s Bank of China plans to cut the ratio of bonds it holds until maturity as it steps back from day-to-day interventions in the domestic foreign exchange market, Market News International reported, citing PBOC Governor Zhou Xiaochuan as saying in a study guide as part of the 3rd plenum.
The U.S. 10-year yield will rise to 2.90 percent in March and to 3.39 percent at the end of 2014, according to weighted average estimates in a Bloomberg survey of analysts.
“If we have more good data next month, then the market will guess we will have tapering start in December,” said Kim Youngsung, who helps oversee about $105 billion as head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor.
U.S. retail sales rose 0.1 percent in October from September, while consumer prices were unchanged and existing-home sales fell, according to surveys of economists by Bloomberg News before the reports tomorrow. Data today will show employment costs rose in the third quarter, a separate economist poll shows.
reporter on this story: Anchalee Worrachate in London