Treasurys Have Biggest Two-Day Gain Since June on Yield Level

Friday, 17 December 2010 02:03 PM

Treasurys gained the most over 2 days since June as 10-year note yields near a 7-month high attracted investors.

U.S. debt got a boost as the Federal Reserve bought $2.03 billion in Treasurys today, part of $105 billion in purchases over a month. The yield was headed for a second weekly gain on speculation an extension of tax cuts will stimulate the economy and widen the budget deficit.

“We had a very large back-up in a short period of time,” said Dan Mulholland, a Treasury trader in New York at Royal Bank of Canada, one of 18 primary dealers that trade with the Fed. “A lot of the supply has been taken out.”

The yield on the benchmark 10-year note dropped nine basis points, or 0.09 percentage point, to 3.34 percent at 1:47 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 increased 23/32, or $7.19 per $1,000 face amount, to 94 1/32.

The 30-year bond gained one point, pushing the yield down eight basis points to 4.46 percent. The two-year note yield was little changed at 0.63 percent.

The 10-year yield has fallen 19 basis points over the past two days, the most since a decrease of 22 basis points during the two days ended June 7, after the U.S. payrolls report showed employers added fewer jobs than forecast. The 10-year yield touched 3.56 percent yesterday, the highest level since May 13.

The seven-day relative strength index on the 10-year yield was at 58 today after increasing to 79.929 on Dec. 15, the highest in a month, according to Bloomberg data. Readings at or above 70 typically indicate yields are poised to fall.

Treasury Volatility

Bank of America Merrill Lynch’s MOVE index, which measures volatility in Treasurys based on prices of over-the-counter options maturing in 2 to 30 years, rose on Dec. 15 to 125.20, the highest level since September 2009.

Fed officials maintained following their Dec. 14 meeting a $600 billion program of U.S. debt buying under a second round of quantitative easing, saying the economic expansion hasn’t been strong enough to reduce joblessness. The recovery “is continuing, though at a rate that has been insufficient to bring down unemployment,” the Fed statement said.

The central bank bought Treasurys maturing from August 2028 to November 2040 today, bringing the total in its latest purchase program to $129.7 billion, according to Bloomberg data. The central bank will hold two buybacks on Dec. 20, accepting securities maturing in 4 to 5 years and 8 to 10 years.

Weekly Yield Gain

Ten-year note yields have gained one basis point this week after rising 31 basis points during the week ended Dec. 10, the biggest increase since August 2009.

The New York-based Conference Board’s leading economic indicators, a gauge of the outlook for the next three to six months, rose 1.1 percent in November after gaining a revised 0.4 percent in the previous month.

The gain matched the median forecast of 59 economists in a Bloomberg News survey.

The U.S. economy grew 2.8 percent in the third quarter from a year earlier, faster than the 2.5 percent estimate issued last month, according to the median forecast of 24 economists before the Commerce Department’s report Dec. 22.

Congress passed an $858 billion bill extending for two years all tax cuts enacted during the administration of George W. Bush, sending the measure to President Barack Obama for his signature. Obama will sign the measure into law later today, White House spokesman Robert Gibbs said via e-mail.

Ireland’s Rating

Shorter-dated Treasurys notes rose earlier after Moody’s Investors Service lowered Ireland’s credit rating five levels to Baa1 from Aa2.

That’s three levels above non-investment grade and the same level as countries including Russia and Lithuania. The outlook on the rating is “negative,” Moody’s said.

European Union leaders agreed to amend the bloc’s treaties to create a permanent crisis-management mechanism in 2013, with Germany refusing to boost the current 750 billion-euro ($1 trillion) emergency fund for the most indebted countries.

BNP Paribas SA increased its forecast for 10-year yields, predicting they will climb to 3.75 percent by the end of 2011.

“QE2 is a commitment to create inflation and, among other things, should exert upward pressure on 10-year yields,” analysts led by Paul Mortimer-Lee, London-based global head of market economics at BNP, wrote in a report yesterday.

The Labor Department reported Dec. 15 that consumer prices excluding food and energy rose 0.8 percent in November from a year earlier after an advance of 0.6 percent in the prior month, the smallest gain in year-over-year data going back to 1958.

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Treasurys gained the most over 2 days since June as 10-year note yields near a 7-month high attracted investors. U.S. debt got a boost as the Federal Reserve bought $2.03 billion in Treasurys today, part of $105 billion in purchases over a month. The yield was headed for a...
Friday, 17 December 2010 02:03 PM
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