Treasury 30-year bond yields traded at almost the lowest level since May 2013 before the Federal Reserve releases minutes of its latest policy meeting.
Benchmark 10-year notes erased losses as Chicago Fed President Charles Evans said unemployment remains too high and a stronger dollar could hurt the country’s exports. Government bonds surged around the world yesterday as the International Monetary Fund cut its global-growth outlook. The Treasury will sell $21 billion of the 10-year notes today.
“We have rallied since Evans started talking,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “He is normally a dove, and his comments are pretty much in line with previous thoughts, but it seems to be the catalyst the market needed to rally this morning.”
The U.S. 10-year yield was little changed at 2.34 percent at 9:35 a.m. New York time after reaching 2.37 percent, according to Bloomberg Bond Trader data. The 2.375 percent note due August 2024 traded at 100 10/32.
The yield on the 30-year bond touched 3.04 percent, the lowest level since May 2013.
Inflation Measure
The difference between U.S. 10-year yields and those of similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, shrank to 1.91 percentage points, the narrowest since June 2013.
The 10-year securities to be sold today yielded 2.35 percent in pre-auction trading, the lowest level since June 2013, according to data compiled by Bloomberg. At the previous sale of the securities on Sept. 10, the notes drew a yield of 2.535 percent.
“People are starting to prepare for” the 10-year auction, said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “The Fed will stand pat on its belief that interest rates will stay low for a long period of time.”
The government sold $27 billion of three-year notes yesterday and plans to conclude this week’s auctions with $13 billion of 30-year bonds tomorrow.
Fed Policy
The Fed is scheduled to publish the minutes of its Sept. 16-17 meeting at 2 p.m. Policy makers last month raised their median estimate for the key rate to 1.375 percent by the end of next year, compared with a June forecast of 1.125 percent. Therate has been in a range of zero to 0.25 percent since December 2008.
Predictions for the central bank to increase interest rates in mid-2015 are “reasonable,” as policy makers wait for unemployment to fall further and inflation to rise, New York Fed President William C. Dudley said in a speech yesterday.
“The most interesting thing is the debate around forward guidance,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands. “At the last meeting most in the markets thought it was about time to change this ‘considerable time’ phrase..”
The world economy will grow 3.8 percent next year, compared with a July forecast for 4 percent, after a 3.3 percent expansion this year, the Washington-based IMF said. The U.S. is a bright spot, according to the IMF, where growth predictions were raised.
The average yield on U.S., Japan and German bonds dropped to 1.25 percent, according to data compiled by Bloomberg that go back to 1989. The low, of 1.11 percent, was set in July 2012.
The U.S. 10-year yield will rise to 2.74 percent by year-end, according to analysts surveyed by Bloomberg, with the most recent forecasts given the heaviest weightings.
