Treasury 10-year yields rose, adding to the biggest monthly gain in more than three years, as consumer confidence gained and an economic gauge climbed last month, boosting speculation the Federal Reserve may
Benchmark notes extended losses after a report showed consumer confidence rose in May to the highest level since 2007. U.S. government debt securities fell 1.8% in May as of Thursday, headed for the steepest monthly loss in three years, according to Bank of America Merrill Lynch indexes. Pacific Investment Management Co.’s Bill Gross said he likes five- to 10-year Treasuries and there will be “no tapering for now.”
“This is actually saying the economy is expanding,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “It puts the Fed in check. They are not sure what to do. Views are all over the place, legitimately.”
Treasury 10-year yields rose seven basis points, or 0.07 percentage point, to 2.19% at 1:42 p.m. New York time Friday, according to Bloomberg Bond Trader data. The 1.75% note due in May 2023 gained 21/32 or $6.56 per $1,000 face amount, to 96 1/8.
The yield has climbed 51 basis points since April 30, the most since jumping 64 basis points in December 2009.
“We’re on edge,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The market has backed up accordingly and we’re probably going to reside here as we take a look at next week’s data.”
Pimco’s Gross, manager of the world’s biggest fixed-income fund, said the federal funds rate will remain at 0.25% for a “long time.” He made his comments in a Twitter post.
The Fed has been buying $85 billion of Treasury and mortgage debt a month to support the economy. Fed Chairman Ben S. Bernanke said last week the central bank could curtail monetary stimulus if policy makers see signs of sustained improvement in economic growth.
That prompted a selloff that pushed 10-year yields to 2.23% on May 29, the highest level since April 5, 2012. Policy makers meet next on June 18-19.
The central bank purchased $5 billion of securities maturing between May 2017 and February 2018 today, according to the New York Fed’s website.
Treasury’s $35 billion sale of two-year debt on May 28 attracted the fewest bids for the securities since February 2011. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.04, compared with an average of 3.72 for the past 10 sales.
The Thomson Reuters/University of Michigan final index of sentiment increased to 84.5 in May, the strongest since July 2007, from 76.4 a month earlier. The median forecast in a Bloomberg survey called for the gauge to hold at its preliminary reading of 83.7.
A separate report showed the MNI Chicago Report’s business barometer rose to 58.7 in May from 49 last month.
Treasuries earlier rose as a report showed inflation dropped by the most in more than four years.
A gauge tracked by the Fed known as the personal consumption expenditure, or PCE, fell by 0.3 percent last month, the biggest drop since December 2008.
