Treasuries fell, pushing 10-year yields higher for a third day, as optimism that European finance ministers are close to a debt-reduction package for Greece damped demand for refuge.
Ten-year yields rose to an almost two-week high as the U.S. sold $13 billion in Treasury Inflation Protected Securities of the same maturity at a higher-than-forecast yield of negative 0.72 percent. U.S. government debt due in 10 years and longer has returned 2.2 percent in the past month, the most among securities in 144 indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies. Volatility dropped yesterday to a five-year low.
“We’re being driven by what’s going on in Europe,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “At least people are meeting to come up with a plan. It’s showing initiative.”
The benchmark 10-year yield rose one basis point, or 0.01 percentage point, to 1.68 percent at 4:59 p.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent security due in November 2022 dropped 1/8, or $1.25 per $1,000 face amount, to 99 1/2. The yield touched 1.69 percent, the highest since Nov. 8.
The Securities Industry and Financial Markets Association recommends a full market close tomorrow for the Thanksgiving Day holiday and an early close at 2 p.m. New York time on Nov. 23.
“People are hopeful that something resolves itself around Greece,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “I’m not sure if that’s going to happen. It’s a short lived sell-off because of austerity -- they will continue to have weak economic growth.”
Volatility in U.S. government bonds dropped to the lowest in more than five years before the holiday. Bank of America Merrill Lynch’s MOVE index, which measures price swings for Treasuries based on options, fell to 53.7 yesterday, the least since May 2007.
Treasury trading volume rose to $241.6 billion yesterday, compared with the 2012 daily average of $241 billion, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. The figure was up from $177 billion the previous day.
Jobless claims decreased by 41,000 to 410,000 in the week ended Nov. 17 as damage to the labor market caused by Hurricane Sandy began to subside, the Labor Department reported today in Washington. The number of applications matched the median forecast of 48 economists surveyed by Bloomberg.
“You can’t make much of the two-week’s worth of economic data because it’s highly impacted by Hurricane Sandy,” said Tom Porcelli, chief U.S. economist in New York at Royal Bank of Canada, one of 21 primary dealers that trade with the Federal Reserve. “You are going to be hard pressed to find a catalyst today, unless you get some significant out-of-consensus print on the economic data.”
The Fed sold $7.67 billion in Treasuries maturing from November 2015 to January 2016 today as part of its Operation Twist program in which it swaps short-term debt for longer-term securities.
Fed Chairman Ben S. Bernanke said yesterday an agreement to reduce long-term U.S. deficits may remove an impediment to economic growth and crimp haven demand. The Fed’s next policy meeting is Dec. 11-12.
Ten-year TIPS yielded negative 0.764 percent just before today’s auction. The rate slid to a record negative 0.96 percent last month, with investors so concerned about inflation that they are willing to accept yields below zero to buy debt that protects against price gains.
Demand today was stronger than at the last auction, drawing a bid-to-cover ratio of 2.52, compared with 2.36 at the previous sale in September, the lowest since 2009.
Indirect bidders, a group that includes foreign central banks, bought 48.3 percent of the amount sold, compared with 43.8 percent in the prior auction. Primary dealers bought 41.3 percent, compared with 48.5 in the previous sale. Direct bidders purchased 10.4 percent, compared with 7.7 percent at the previous sale.
Treasuries were earlier supported as 27 European Union leaders are preparing to square off over the budget in Brussels tomorrow after euro-region finance ministers’ efforts to agree on a debt-reduction plan for Greece failed. More than 11 hours of talks ended without a deal early this morning as a bloc of top-rated creditors led by Germany refused to write off a portion of their aid loans. The finance ministers will regroup on Nov. 26.
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