Treasuries snapped a rally on speculation yields that slid to a four-week low will curb demand as investors prepared to bid for $66 billion of notes and bonds at three auctions starting today.
Yields on 10-year notes were 81 basis points below the rate of inflation, the most in almost a month. The U.S. will sell $32 billion of three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds on April 12.
“I don’t expect too much more movement before the auctions,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “We don’t have much appetite for Treasuries at these levels, and I suspect others don’t either.”
Yields on 10-year notes increased less than one basis point, or 0.01 percentage point, to 2.05 percent at 7:28 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 were little changed at 99 17/32. The yields touched 2.02 percent yesterday, the lowest level since March 12.
The three-year notes scheduled for sale today yielded 0.460 percent in pre-auction trading, compared with 0.456 percent at the previous offering of the securities March 12.
Investors bid for 3.44 times the amount of debt available last month, compared with the average for the past 10 sales of 3.37 percent. Indirect bidders, which include foreign central banks, purchased 34.6 percent, versus the 10-auction average of 37 percent.
Treasury auctions are drawing record demand in 2012. Buyers bid $3.19 for each dollar of the $538 billion in notes and bonds sold this year, the most since the government began releasing the data in 1992.
The Fed is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to February 2042 today, according to the New York Fed’s website. The central bank also plans to purchase as much as $5 billion of government securities maturing from April 2018 to February 2020.
Treasuries earlier erased losses as the Bank of Japan (8301) decided against expanding its stimulus efforts and a Chinese report showed import growth trailed forecasts, boosting demand for safer securities.
Japan’s central bank kept its target lending rate in a range of zero to 0.1 percent and left its 30 trillion yen ($370 billion) asset-purchase fund and 35 trillion yen credit-lending program unchanged. Chinese imports increased 5.3 percent in March, the customs bureau said, less than the 9 percent median estimate in a Bloomberg News survey.
“We are firmly in a risk-averse environment with economic concerns and euro risk very much still in play,” said Orlando Green, a fixed-income strategist at Credit Agricole SA in London. “This has been a source of support for Treasuries.”
The Stoxx Europe 600 index fell 1.2 percent, and the MSCI Asia Pacific Index (MXAP) of shares slid 0.3 percent. Standard & Poor’s 500 Index futures advanced 0.2 percent.
Germany’s two-year yield slid as much as three basis points to 0.112 percent, the least since Bloomberg started collecting the data in 1990. The five-years yield dropped as much as five basis points to 0.664 percent, also an all-time low.
Treasury 10-year yields tumbled 13 basis points on April 6, when a Labor Department report showed U.S. job growth in March trailed forecasts, fueling speculation the Fed may be more inclined to initiate a third round of asset purchases, known as quantitative easing.
U.S. wholesale inventories climbed 0.5 percent in February after rising 0.4 percent in the prior month, a Bloomberg survey showed before the Commerce Department report today.
“Yields approaching 2 percent are expensive,” said Youngsung Kim, head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor. “The U.S. economy is pretty good.” Samsung is avoiding the securities for now, Kim said.
Ten-year Treasury futures may reach their 2012 high if they break above a level of resistance, according to Credit Suisse Group AG, citing trading patterns.
An advance beyond 131 29/32 will open the way for a rally to 132 11/32, said Chris Hine, a technical strategist at the firm in London. The 10-year contract expiring in June 2012 declined 1/8 to 131. Resistance refers to an area where sell orders may be clustered.
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