(Bloomberg) -- Treasuries rose for a third day as DoubleLine Capital LP’s Jeffrey Gundlach said yields are poised to fall further and Pacific Investment Management Co.’s Bill Gross cut his holdings of U.S. government-related debt.
Gross, manager of the world’s biggest bond fund, reduced the allocation in his $236 billion Total Return Fund to 43% in February from 46% a month earlier as the Federal Reserve cut its bond-buying program, data on Pimco’s website showed yesterday. Gundlach, the founder of Los Angeles- based DoubleLine Capital, said yesterday on a webcast that 10- year yields will slide to 2.5% this year as the Fed tapers amid a slowing global economy.
“Sell what the Fed has been buying because they won’t be buying them when taper ends in October,” Gross, who is based in Newport Beach, California, wrote on Twitter last week.
The yields on the benchmark 10-year note fell three basis points, 0.03 percentage point, to 2.74% as of 8:47 a.m. in New York, Bloomberg Bond Trader data show. The 2.75% note due in February 2024 rose 1/4, or $2.50 per $1,000 face amount, to 100 3/32.
Gross and Gundlach differ as investors try to discern how much the weather slowed the world’s biggest economy. Treasury benchmark 10-year yields have fallen about a quarter percentage point this year, contrary to the predictions of analysts who expected borrowing costs to rise, as winter storms slowed housing, consumption and employment. The U.S. is scheduled to sell $21 billion of 10-year notes today.
“There’s a tremendous amount of caution involved,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “People aren’t convinced about where they should be -- where they should be parking their money.”
Benchmark 10-year yields will rise to 3.4% by year- end, based on a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
Policy makers have reduced their monthly debt purchases by $10 billion in January and again in February, to $65 billion. The U.S. central bank’s next meeting is March 18-19.
Fed Chair Janet Yellen said last month the central bank will probably maintain its strategy of trimming the program.
While job gains failed to meet expectations in December and January, U.S. employers added 175,000 positions in February, beating the projection of 149,000 among economists in a Bloomberg News survey, Labor Department figures March 7 showed.
Gross’ Total Return Fund has fallen 0.4% in the past year, ranking in the 19th percentile among its peers, according to data compiled by Bloomberg.
The $31.5 billion DoubleLine Total Return Bond Fund gained 1.6% to place in the 81st percentile.
Treasuries were near the cheapest level in almost four years versus their global peers before today’s 10-year auction.
Government securities due in seven to 10 years yielded 95 basis points than non-U.S. sovereign debt as of yesterday, Bank of America Merrill Lynch data showed. The spread was 98 basis points the day before, a level not seen since April 2010.
“Additional tapering is seen as almost certain at the Fed meeting next week amid expectations of a job market recovery, and that puts upward pressure on Treasury yields,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 22 primary dealers that underwrite the U.S. debt.
Demand will pick up at today’s auction if the yield rises to 2.8%, Fujiki said.
The 10-year notes scheduled for sale yielded 2.750% in pre-auction trading, down from 2.795% at the previous sale of the securities on Feb. 12.
Investors bid for 2.54 times the amount of available debt last month, compared with the average of 2.62 for the prior 10 offerings including February’s.
Indirect bidders, which include foreign central banks, bought 49.7% of the securities, the most since June at the monthly sales. Direct bidders, non-primary dealers buying for their own accounts, purchased 16.2% of the notes, the highest proportion in three months.
The U.S. auctioned $30 billion in three-year notes yesterday. Indirect bidders purchased 29.9%, compared with 42% last month that was the most since August 2011.
The Treasury will conclude this week’s sales with a $13 billion 30-year bonds tomorrow.