Treasury 10-year note yields rose the most in two months as signs the U.S. economy is improving stoked speculation that there is no need for the Federal Reserve to ramp up monetary stimulus.
The benchmark notes fell, pushing yields to the highest level in six weeks, as the Fed and other central banks pump cash into their economies or cut interest rates, prompting money managers to seek higher-yielding assets. Stronger-than-forecast employment gains reported last week and fewer-than-projected jobless claims helped the dollar rally versus the yen after passing the 100 level on May 9. Consumer sentiment this month may have reached the highest level this year, according to a Bloomberg News survey of economists.
“There is little doubt that the next Fed move will be less easing, not more,” said Michael Mata, a money manager in Atlanta at ING Investment Management Americas, which oversees about $125 billion. “Fear of increases in balance-sheet expansion have gone way down. The strong employment numbers started to change that sentiment.”
The U.S. 10-year yield climbed 16 basis points this week, or 0.16 percentage point, to 1.9 percent in New York, after reaching the highest level since March 26, according to Bloomberg Bond Trader prices. It was the biggest yield climb since the week ended March 8. The 1.75 percent note due in May 2023 reached 98 21/32.
The benchmark yield traded above its 50-, 100- and 200-day moving averages yesterday for the first time since March 25. Pacific Investment Management Co.’s Bill Gross wrote in a message on Twitter that the 30-year bull market for bonds “likely ended” on April 29.
The yen fell beyond 101 per dollar yesterday for the first time since April 2009 after a government report showed Japanese investors boosted holdings of overseas bonds. Japan’s currency dropped 2.7 percent to 101.62 per greenback.
“The yen move has taken other asset classes screaming with it,” said Eric Lascelles, the chief economist at Toronto-based Royal Bank of Canada Global Asset Management, which oversees about $280 billion. “We are expecting the yen to depreciate further.”
Hedge-fund managers and large speculators cut net-long position in 10-year note futures in the week ending May 7 by 71 percent, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 37,956 contracts on the Chicago Board of Trade, compared with 132,044 contracts a week earlier.
Treasuries due in a decade or more are close to the cheapest levels in a month relative to global peers with comparable maturities, according to Bank of America Merrill Lynch indexes. Yields on Treasuries was 49 basis points higher than those in an index of other sovereign debt May 9, just below the 52 basis points reached on May 6, the cheapest level since April 4. As recently as March 25, the gap was at 57 basis points, the cheapest level since August 2011.
Government bonds in Japan, Germany and the U.K. slumped and the yen weakened.
“The time is right for some of these safe-haven markets to see some unwinding,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “There was a huge move in Japanese government bonds and also in stocks and the dollar-yen. Yields are going to push higher in coming months as there isn’t that sense of urgency that pushed them toward record lows.”
The U.S. central bank is buying Treasuries and mortgage debt each month to support the economy by capping borrowing costs. The Bank of Japan is purchasing more than 7 trillion yen ($70 billion) of debt each month in expanded easing measures announced April 4.
Fed purchases have suppressed volatility. Bank of America Merrill Lynch’s MOVE index measuring price swings in Treasuries fell to an all-time low of 48.87 basis points May 9. The measure averaged 62.6 during the past 12 months.
The number of Americans filing claims for jobless benefits unexpectedly dropped to 323,000 last week and the average during the past month fell to the lowest level since before the last recession, the Labor Department said May 9. On May 3, a report showed stronger-than-forecast 165,000 increase in jobs in April and unemployment at 7.5 percent, a four-year low.
The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 77.9 in May from 76.4 a month earlier, according to the median projection in a Bloomberg News survey of 56 economists before the report May 17.
The U.S. sold $72 billion in notes and bonds this week, including $32 billion in three year notes, $24 billion in 10-year securities and $16 billion in 30-year bonds.
The yield on the 10-year note is forecast to end the year at 2.20 percent, according to the median estimates of economists in a Bloomberg News survey May 3 to 8. The figure is down from a forecast of 2.25 percent in a Bloomberg News survey conducted April 5 to April 9. Thirty-year bonds may yield 3.25 percent at the end of the year, compared with a forecast for 3.37 percent in the previous survey.
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