Bloomberg News

Treasury 10-Year Yields Near 6-Month Low Before Retail Report

June 12, 2011

June 13 (Bloomberg) -- Treasury 10-year yields were six basis points from this year’s low before a report that economists say will show U.S. retail sales dropped for the first time in 11 months.

Two-year yields were set for the biggest quarterly drop in more than two years on prospects Federal Reserve Chairman Ben S. Bernanke will signal tomorrow the central bank will maintain easing measures. The Fed will buy $4 billion to $5 billion in Treasuries today maturing in August 2018 to May 2021 as part of its $600 billion bond-purchase program that ends this month.

“Treasuries have yet to fully price in an economic slowdown,” said Shinichiro Kadota, a non-yen strategist in Tokyo at Barclays Capital, one of the 20 primary dealers authorized to trade directly with the Fed. Ten-year yields “have room to fall toward 2.9 percent by the end of September.”

Yields on 10-year notes were little changed at 2.98 percent as of 9:11 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3.125 percent security maturing in May 2021 fell 1/32, or 31 cents per $1,000 face amount, to 101 9/32. The yields reached 2.92 percent on June 9, the lowest since Dec. 3.

Two-year yields have declined 42 basis points since March 31, poised for the biggest quarterly drop since the period ended December 2008.

Retail sales in the U.S. dropped 0.5 percent in May, the first decrease since June 2010, according to the median estimate in a Bloomberg News survey of economists before the data tomorrow.

Bernanke said on June 7 that record monetary stimulus is still needed to boost a “frustratingly slow” recovery. The central bank will continue reinvesting proceeds from agency and mortgage-backed holdings into Treasuries after the end of its $600 billion bond-buying program this month.

Bernanke is set to speak on fiscal sustainability in Washington tomorrow. Richmond Fed President Jeffrey Lacker is scheduled to speak today in Roanoke, Virginia.

--Editors: Rocky Swift, Nicholas Reynolds

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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