(Bloomberg) -- Treasuries fell for a fifth day, reversing earlier gains, before the U.S. government sells $64 billion of notes and bonds this week.
U.S. securities also dropped as Federal Reserve Bank of Philadelphia President Charles Plosser said officials must be aware of the risk of loose monetary policy. Employment gains in the U.S. last week added to speculation the Fed will continue trimming the debt purchases it uses to support the economy. The Fed’s next policy meeting is March 18-19. Treasuries rose earlier as China reported the biggest trade deficit in two years, driving demand for the safety of U.S. debt.
“While there’s safe-haven demand for Treasuries, that won’t prevent yields from going up,” said Peter Osler, head of rates strategy at Marex Spectron Group Ltd. in London. “The economic recovery in the U.S. means rates will have to go up at some point, and it could happen sooner than what’s currently priced in by the market.”
U.S. 10-year yields rose one basis point, or 0.01 percentage point, to 2.80% at 8:01 a.m. New York time after falling as much as three basis points earlier. The 2.75% security due February 2024 fell 2/32, or 63 cents per $1,000 face amount, to 99 19/32.
The yield advanced to 2.82% on March 7, the highest level since Jan. 23. It was 115 basis points more than 10-year German bunds, the most in seven years.
Treasury prices may fall as investors prepare to bid at this week’s note and bond sales, said John Gorman, the head of dollar-denominated interest-rate products at the Singapore unit of Nomura Holdings Inc. The company’s U.S. arm is one of the 22 primary dealers that are required to bid at the auctions.
The Treasury Department is scheduled to sell $30 billion in three-year notes, $21 billion in 10-year debt and $13 billion in 30-year bonds over three days starting tomorrow.
“The market’s headed for a bounce lower once we start focusing on the auctions,” Gorman said. “It’s a perfect opportunity to get back in and sell.” Ten-year yields will rise to 3.25% within the next three months, he said.
China’s overseas exports declined 18.1 percent in February from a year earlier, data showed March 8, compared with analysts’ median estimate for a 7.5% increase.
U.S. employers added 175,000 jobs in February, versus the projection of 149,000 in a Bloomberg News survey of economists.
“U.S. labor statistics imply that the effect of the severe winter climate on the economy is temporary,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank as measured by market value. “The Fed will continue to taper.”
Ten-year yields will rise to 3.4 percent by year-end, he said.
Plosser, who votes on policy this year, said today that recent economic data in the U.S. is “encouraging” though it isn’t enough to change the pace of the central bank’s asset purchases.
“We should be aware of the unintended consequences of monetary policy around the world,” Plosser said in a Bloomberg Television interview with Manus Cranny in Paris. “We have initiated programs and policies that we have never tried before and we have to be cautious in thinking about the risk that policies engender and worry about those to make sure that they do not get out of line and overtake the economy in a negative way.”
Data this week will show U.S. retail sales rebounded in February and consumer confidence rose in March, based on economists’ forecasts.
Fed Chair Janet Yellen said in February that the central bank’s bond-purchase program will probably end in the fall if the economy grows as policy makers anticipate.
The central bank has reduced its monthly asset purchases by $10 billion a month in January and February, to $65 billion.
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