Treasury 10-year yields were within six basis points of a record low before a government report that economists said will show claims for jobless benefits rose last week, underpinning demand for the safest assets.
Yields on 10-year Treasury Inflation Protected Securities were four basis points from the least ever before the U.S. sells $15 billion of the notes today. Two-year note yields dropped to the lowest level since January as Morgan Stanley, the sixth- biggest U.S. bank, reported a 50 percent drop in earnings and after Spanish borrowing costs increased at a debt sale.
“There’s a supportive environment for Treasuries,” said Vincent Chaigneau, global head of interest-rate strategy at Societe Generale SA in Paris. “We also have a global economic slowdown, the situation in Europe remains very difficult and there are still many risks around.”
The benchmark 10-year yield was little changed at 1.49 percent at 7:26 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 traded at 102 10/32. The yield fell to a record 1.4387 percent on June 1.
Two-year yields declined one basis point to 0.21, the lowest level since Jan. 31.
Applications for jobless benefits increased to 365,000 in the week ended July 14 from 350,000 the previous week, according to a Bloomberg News survey before the Labor Department report.
Economists say other figures today will show sales of existing homes rose, an index of leading economic indicators fell, and manufacturing in the Philadelphia area shrank, according to separate Bloomberg surveys.
Morgan Stanley’s second-quarter profit declined to $591 million from $1.19 billion a year earlier, the New York-based company said today. Excluding accounting adjustments tied to the company’s own credit spreads, profit was 16 cents a share, below the 29 cent average estimate of analysts surveyed by Bloomberg.
Spain sold five-year notes at an average yield of 6.46 percent, up from 6.07 percent at the previous auction on June 21. Investors bid for 2.06 times the number of securities allotted, versus 3.44 last month. The nation also sold two- and seven-year debt.
U.S. TIPS yielded negative 0.65 percent, data compiled by Bloomberg show. The difference between the inflation-protected yield and the benchmark rate, a gauge of trader expectations for consumer prices, was 2.08 percentage points.
“People think inflation will be around 2 percent in the long term, lending some support to TIPS,” said Tomohisa Fujiki, a strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “It’s natural that yields on TIPS are negative because all Treasury yields are falling.” BNP’s U.S. unit is one of the 21 primary dealers that trade directly with the Fed.
U.S. inflation-protected notes pay interest on a principal amount that increases at the same rate as the Labor Department’s consumer price index.
TIPS have handed investors a 5.9 percent return this year through yesterday, compared with a 2.7 percent gain for conventional Treasuries, according to indexes compiled by Bank of America Merrill Lynch.
The previous 10-year TIPS sale on May 17 drew a record low auction yield of negative 0.391 percent. Investors bid for 3.01 times the amount of debt offered, the most since April 2010. Indirect bidders, which include foreign central banks, bought 50.7 percent, the highest level since November 2010.
The five-year, five-year forward break-even rate, a measure of inflation expectations that the Fed uses to help guide monetary policy, was 2.4 percent as of July 16. The figure compares with 2012’s high of 2.78 percentage points and the average of 2.75 percent for the past decade.
U.S. consumer prices rose 1.7 percent in June from the year before, the Labor Department reported on July 17. A Bloomberg survey of economists projected 1.6 percent, which would have been the lowest level in 17 months.
The Fed is swapping short-term Treasuries in its holdings for longer maturities to put downward pressure on long-term borrowing costs. The central bank plans to buy as much as $2 billion of bonds due from February 2036 to May 2042 today as part of the plan, according to the Fed Bank of New York website.
Treasury 10-year yields may fall to a record 1.25 percent in the next several months as the U.S. economy struggles to grow, said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, which has $3.1 billion in assets.
“Our economy certainly isn’t moving anywhere fast,” Fovinci said. “That’s going to keep a flight-to-quality bid.”
The U.S. will announce today the sizes of three auctions due next week. It will sell $35 billion of two-year notes, the same amount of five-year securities and $29 billion of seven- year debt over three days starting July 24, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey.
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