Bloomberg News

Treasuries Decline as Fed Minutes Show Support to Stop Easing

April 10, 2013

Treasuries declined a third day after minutes of the last Federal Reserve meeting showed several members said the central bank should begin tapering its bond- buying program later this year and stop it by year-end.

Yields on benchmark 10-year notes rose as the U.S. government prepared to auction $21 billion of the debt today followed by $13 billion of 30-year bonds tomorrow. Yields remained higher as Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank will take all steps necessary to meet a 2 percent inflation target even as he indicated policy adjustments are unlikely every month.

It’s “as much talk being focused on tapering and ending quantitative easing earlier than expected,” said Dan Mulholland, head of U.S. Treasury trading in the capital-markets unit of BNY Mellon Corp. in New York. “The Treasury market is a little bit lower.”

The 10-year yield rose four basis points, or 0.04 percentage point, to 1.79 percent at 12:17 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due February 2023 fell 10/32, or $3.13 per $1,000 face amount, to 101 29/32. The yield dropped to 1.68 percent on April 5, the lowest level since Dec. 12.

The Fed released the minutes of its March 19-20 meeting ahead of the previously scheduled time after they were inadvertently sent to some individuals yesterday afternoon. The individuals on the distribution list were primarily congressional employees and employees of trade organizations, the central bank said in a statement.

Previous Auction

The 10-year securities being auctioned today yielded 1.79 percent in pre-auction trading. The notes were sold at a yield of 2.029 percent at the previous auction on March 13, versus 2.046 percent on Feb. 13.

Investors bid for 3.19 times the amount of available debt last month, the highest bid-to-cover ratio since October. Indirect bidders, which include foreign central banks, bought 47.7 percent of the securities, the most since December 2011.

“The risk at the auction is Japanese investors may use the liquidity event to add 10-year Treasuries exposure,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It’s not clear to me it’s a foregone conclusion, but that’s been highlighted as a key risk ahead of this afternoon’s auction.”

FOMC Outlook

The central bank currently buys $85 billion of Treasury and mortgage debt a month in its so-called quantitative easing program to spur the economy by putting downward pressure on borrowing costs.

Members of the Federal Open Market Committee “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” according to the record of the FOMC’s March 19-20 meeting released today in Washington.

Payrolls grew by 88,000 workers last month, the least in nine months, even as the unemployment rate declined, the Labor Department said April 5. Economists in a Bloomberg News survey had forecast a rise of 190,000.

“The meeting minutes, from our perspective, didn’t really mean a whole lot because of that 88,000 print,” said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed- income officer for Fifth Third Asset Management, which oversees $15 billion in assets. “All that number did on Friday was to confirm the $85 billion a month of Treasury and mortgage-backed purchases is going to go on.”

The economy added an average of 179,000 people a month to nonfarm payrolls in 2011 and 2012, Labor Department data show. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.

Yield Rise

The benchmark 10-year yield will rise to 2.3 percent by year-end, according to a Bloomberg survey of economists with the most recent projections given the heaviest weightings.

U.S. securities fell along with German bunds and U.K. gilts as speculation waned that Japanese investors will buy them after the Bank of Japan (8301) said it would boost monthly bond purchases to an unprecedented 7.5 trillion yen ($75.4 billion) a month.

German 10-year bund yields rose four basis points to 1.30 percent and the yield on similar-maturity gilts also added four basis points, to 1.78 percent.

“The notion is the head of the Bank of Japan has said the bank has done what’s possible for now, suggesting its current policy stance is going to be in place,” Lyngen of CRT said.

“The biggest commitment is that we will take all necessary measures,” Kuroda said at a press gathering in Tokyo today, six days after announcing unprecedented stimulus to double the monetary base over two years. Markets are still adjusting to the policies, he added, after swings in bond yields.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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