(Bloomberg) -- Treasuries halted a three-day decline as Federal Reserve Governor Jerome Powell said the central bank will probably push on with stimulative policy for some time.
U.S. debt rose before Fed Bank of Boston President Eric Rosengren speaks in Boston as investors weigh when the central bank will slow its $85 billion in monthly bond purchases. The U.S. Treasury Department said it will borrow about 13 percent more this quarter than it projected three months ago because of a higher estimate for the country’s cash balance on Dec. 31.
“We are clearly in still in a downward trending yield market, as investors have been totally dominated by Federal Reserve concerns,” said Dan Greenhaus, chief global strategist in New York at broker-dealer BTIG LLC. “We have settled at these levels as the hurdles for lower yields from here get higher. The market will remain very data dependent until we get more clarification from the Fed.”
The U.S. 10-year note yield fell two basis points, or 0.02 percentage point, to 2.60 percent at 3:26 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.5 percent note due August 2023 rose 5/32, or $1.56 per $1,000 face amount, to 99 1/8. The yield climbed to 2.63 percent on Nov. 1, the highest level since Oct. 17.
Borrowing Plans
Issuance of net marketable debt will be $266 billion in the October-to-December period, compared with $235 billion initially forecast on July 29, the department said today in Washington. At the end of December, the Treasury will have $140 billion in cash, versus $80 billion expected before.
On Nov. 6, the U.S. will announce the amount it will sell in three-, 10-and 30-year debt on three consecutive days starting Nov. 12.
The Treasury is planning to sell the first floating-rate notes at the end of January to expand its investor base and limit borrowing costs, according to a July 31 statement. The sales would be the first added U.S. government debt security since Treasury Inflation-Protected Securities were introduced in 1997.
The central bank bought $3.7 billion of Treasuries maturing from August 2019 to June 2020 today.
“Monetary policy in the United States is likely to remain highly accommodative for some time,” Powell said today in a speech in San Francisco. “The timing of this moderation in the pace of purchases is necessarily uncertain, as it depends on the evolution of the economy.”
Higher Yields
The 10-year yield climbed 11 basis points last week, the most since the period ended Sept. 6, as Fed Bank of St. Louis President James Bullard said the improvement in the labor market could warrant a cut in the central bank’s stimulus program. Fed Bank of Dallas President Richard Fisher said the central bank should resume normal monetary policy as soon as possible.
“I am not a proponent of ever-increasing government spending,” Fisher said in the partial text of a speech in Sydney. “I mention this simply to illustrate a point: Unlike in most recoveries, government has played a countercyclical, suppressive role. The inability of our government to get its act together has countered the pro-cyclical policy of the Federal Reserve.”
A Bloomberg survey of analysts taken from Oct. 17-18 forecast the Fed will taper bond purchases in March, later than previous surveys indicated, after the government’s 16-day partial closure dented economic-growth estimates. The central bank unexpectedly refrained from reducing stimulus in September.
“Prices are fairly neutral here as everyone will be focusing on payrolls at the end of the week to get some clarity,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 21 primary dealers that trade with the Fed.
Economic Reports
A report Nov. 8 is forecast to show the U.S. added 120,000 jobs in October, compared with 148,000 the previous month.
U.S. factory orders rose by 1.7 percent in September after falling 0.1 percent the previous month. The forecast was for an increase of 1.8 percent, according to a Bloomberg survey of economists.
Companies on the Standard & Poor’s 500 Index have posted earnings per share that were the equivalent of 5.98 percent of their stock prices, data compiled by Bloomberg show. The difference between the earnings yield and the 10-year Treasury yield was 3.36 percentage points. It narrowed to 3.25 on Sept. 10, the least since May 2011, signaling either stocks may be overvalued, Treasuries are relatively undervalued, or both.
Earnings per share gains are “due to lower taxes, lower interest rates, and share buybacks?” Bill Gross, co-chief investment officer of Pacific Investment Management Co. and manager of the world’s biggest bond mutual fund, wrote in a comment on Twitter. “These trends are long in the tooth.”
Deutsche Bank AG was one of the few companies surveyed by Bloomberg in January to correctly predict the worst rout in the U.S. Treasury market since 2009. Now, Germany’s largest lender says it’s time to buy.
“The economy isn’t growing as strongly as we’d hoped,” Dominic Konstam, the New York-based global head of interest-rate research at Deutsche Bank, said in a telephone interview on Oct. 28, one day before a measure of U.S. consumer confidence plunged by the most in more than two years.
