Tags: Treasurys | Ukraine | US | Economy

Treasurys Fall on Ukraine Conflict Talks, Hopes for US Economy

Monday, 18 August 2014 04:28 PM

Prices of U.S. Treasury securities fell Monday, with 10-year note yields rising from almost the lowest level since June 2013, as haven demand ebbed amid truce talks on the Ukraine conflict and bets that data this week will show U.S. economic improvement.

Yields rose for the first time in four days as a gauge of U.S. homebuilder confidence in August unexpectedly rose. A report Tuesday is forecast to show housing starts rebounded last month. The Federal Reserve will publish minutes of its July meeting on Wednesday, two days before Fed Chair Janet Yellen is due to speak at an annual symposium in Jackson Hole, Wyoming.

“We are seeing the stretched rubber band of geopolitical worries relax some, and with it Treasurys are losing some steam,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “It’s hard to see value in Treasurys at these levels.”

The benchmark 10-year note yield climbed five basis points, or 0.05 percentage point, to 2.39 percent at 3:56 p.m. in New York, according to Bloomberg Bond Trader data. The 2.375 percent note due August 2024 sank 13/32, or $4.06 per $1,000 face amount, to 99 7/8. The yield slid to 2.30 percent on Aug. 15, the lowest level since June 19, 2013.

Thirty-year bond yields increased six basis points to 3.20 percent. They touched 3.10 percent on Aug. 15, the least since May 22, 2013.

Stocks climbed as investors’ appetite for risk increased, with the Standard & Poor’s 500 Index gaining 0.8 percent.

‘Too Far’

Treasurys rallied last week as turmoil between Ukraine and Russia and weakening economic data in the U.S. fueled demand for safety. The yield on U.S. 10-year notes has fallen almost 20 basis points since July 31, headed for the biggest monthly decline since January.

“We’ve gone a little bit too far, too fast,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “Geopolitical risks are starting to subside.”

Officials from Ukraine, Russia and other countries met in Berlin to discuss a truce in territory in eastern Ukraine held by pro-Russian rebels. Russia’s foreign minister, Sergei Lavrov, said the talks would continue in coming days.

Kurdish and Iraqi forces seized control of Iraq’s largest dam from Islamic State militants as the U.S. deployed air power.

Builder Confidence

Treasury yields accelerated increases after the National Association of Home Builders/Wells Fargo sentiment measure increased to 55, the highest in seven months. The reading last month was 53, and economists surveyed by Bloomberg forecast it would hold at that level in August.

U.S. housing starts jumped 8.1 percent last month to an annual rate of 966,000, the first increase since April, according to a Bloomberg News survey before a Commerce Department report Tuesday.

First-time claims for jobless benefits fell in the week through Aug. 16, after climbing to a six-week high in the previous period, a survey forecast before the Labor Department releases the data on Aug. 21.

Reports last week showed U.S. retail sales stalled in July and consumer confidence fell this month.

“The U.S. data we’ve seen in August have not been strong enough to change the path the Fed is on right now,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. Yellen “will probably lean a little on the dovish side.”

Jackson Hole

Yellen is scheduled to speak at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming, on Friday. The event, which begins Aug. 21, will focus on the labor market.

The conference has an agenda-setting reputation. In 2010 and 2012, then-Fed Chairman Ben S. Bernanke signaled new rounds of bond purchases that have pumped up the Fed’s balance sheet to a record $4.4 trillion.

“There won’t be much new from Jackson Hole,” said LeBas of Janney Montgomery Scott. “Yellen has been so clear with her plans that all the Fed can do is reinforce those plans.”

Yellen has cited labor-market slack as a reason for keeping rates low even as employment improves. The Fed, in a statement July 30 after its last policy meeting, said “a range of labor- market indicators suggests that there remains significant underutilization of labor resources.”

Policy makers at the two-day meeting kept the benchmark interest-rate target unchanged and trimmed monthly bond purchases to $25 billion.

Rate Bets

There’s a 73 percent chance the Fed will raise the target rate from the current range of zero to 0.25 percent by December 2015, futures trading showed, about the same likelihood as seen a month ago.

“Less geopolitical risk is the catalyst for the profit- taking,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “Any kind of back-up in yields doesn’t really change the narrative of a market looking forward to the support of central banks for an extended period.”

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Prices of U.S. Treasury securities fell Monday, with 10-year note yields rising from almost the lowest level since June 2013, as haven demand ebbed amid truce talks on the Ukraine conflict and bets that data this week will show U.S. economic improvement.
Treasurys, Ukraine, US, Economy
Monday, 18 August 2014 04:28 PM
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