Sept. 10 (Bloomberg) — U.S. government debt fell for a fifth day, the longest skid in three months, amid concern investors are underestimating when the Federal Reserve will raise borrowing costs next year.
Yields on benchmark 10-year notes rose alongside those of European bonds, reaching the highest in a month, before the U.S. auctions $21 billion of the securities. Treasuries are the world's worst-performing bonds this quarter as the Fed prepares to end its bond buying while the European Central Bank introduced additional stimulus. Analysts said data this week will show jobless claims fell and retail sales increased, adding to the case for the Fed to raise rates.
"There's some nervousness over Fed policy," said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York. "As we get closer to ending quantitative easing, there's always a risk the Fed comes out and says something a little bit more hawkish. We're starting to see a bottom in global rates in general."
Recommended For You
The U.S. 10-year yield rose three basis points, or 0.03 percentage point, to 2.53 percent at 12:13 p.m. New York time after touching 2.54 percent, the highest since Aug. 1, according to Bloomberg Bond Trader data. The price of the 2.375 percent note due in August 2024 fell 1/4, or $2.50 per $1,000 face amount, to 98 20/32.
The last five-day slump in 10-year notes ended June 4.
Treasury Auctions
The securities to be sold today traded at 2.54 percent in when-issue trading. The previous auction of the securities on Aug. 13 drew a high yield of 2.439 percent, the lowest at the monthly auctions since June 2013. The bid-to-cover ratio was 2.83, above the 2.71 average of the past 10 auctions.
The U.S. sold $27 billion of three-year notes yesterday at the highest yield since April 2011. The government will auction $13 billion of 30-year bonds tomorrow.
Treasuries have returned 0.4 percent since June 30, the worst result of 26 sovereign bond markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.
U.S. government securities maturing in three to five years have lost 0.2 percent this quarter, the biggest decline among 144 debt indexes compiled by Bloomberg and EFFAS.
Euro-area government bonds made 2.4 percent in that period, according to the Bloomberg Eurozone Sovereign Bond Index. Spanish securities led losses in Europe today, with the 10-year yield rising as much as 10 basis points to 2.31 percent.
"We are seeing a big divergence in monetary policy, and also in the business cycle," said Christoph Kind, head of asset allocation at Frankfurt Trust in Frankfurt, which manages about $20 billion. "The ECB is cutting rates and nothing like that is happening in the U.S. There are very good arguments for Treasuries to underperform."
Claims, Retail
The appeal of U.S. government securities is waning amid signs the economy is improving.
Initial jobless claims fell last week, according to a Bloomberg News survey before tomorrow's Labor Department report. The Commerce Department will say on Sept. 12 that retail sales increased 0.6 percent last month after stagnating in July, according to a separate survey.
The yield spread between two- and 10-year Treasuries widened to 197 basis points, the most since Aug. 19. The steeper yield curve suggested investors sought higher returns on longer- maturity debt to compensate for acceleration in inflation as growth picks up.
Researchers at the San Francisco Fed wrote a report released this week that "the public might not give enough weight to how dependent the central bank's guidance is on both current and incoming data."
2.65 Percent
Traders see a 79 percent chance the Fed will increase its benchmark rate to at least 0.5 percent by September 2015, federal fund futures data showed yesterday. That compares with a 73 percent probability seen on Aug. 29. Policy makers have kept their target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.
Jeffrey Gundlach, the co-founder and chief executive officer at DoubleLine Capital LP, said in a webcast that 10-year Treasury yields may climb to 2.65 percent.
Gundlach's $35-billion Total Return Bond Fund has returned 5.2 percent this year, outperforming 94 percent of its peers. Over three years, the fund's 4.9 percent annualized returns have beaten 94 percent of comparable funds, according to data compiled by Bloomberg.
The weighted average forecast in a Bloomberg survey of analysts is for 10-year yields to rise to 2.90 percent by the end of 2014. They were as low as 2.30 percent in August.
–With assistance from Anchalee Worrachate in London and Lukanyo Mnyanda in Edinburgh.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
