(Bloomberg) -- Treasury five-year notes rose, pushing yields toward the lowest since June, amid speculation demand at a $35 billion sale of the securities today will be boosted amid bets the Federal Reserve will maintain stimulus.


The price gains made the securities the most expensive in four months relative to two- and 10-year debt. The butterfly spread, which measures differences between the yields, was at negative 28.3 basis points, a level not seen since June 18 based on closing prices. Fed policy makers start a two-day meeting today, while a Commerce Department report will show retail sales stalled in September, according to a Bloomberg News survey.


“With the tapering postponed until maybe spring of next year, this means there is more appetite for this five-year than maybe there was a few months ago,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “The market will not move very far away from current levels” as investors await the result of the Fed meeting, he said.


The five-year yield fell one basis point, or 0.01 percentage point, to 1.28 percent at 7:40 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.375 percent note due in September 2018 rose 2/32, or 63 cents per $1,000 face amount, to 100 15/32. Yields dropped to 1.25 percent on Oct. 23, the least since June 19.


The two-year yield was little changed at 0.32 percent while that on benchmark 10-year notes declined one basis point to 2.52 percent. Prices of longer-dated securities tend to rise or fall more than shorter-maturity debt when interest rates shift.


Higher Demand


The difference between the yields reflects increased demand for the middle security over the outliers. Five-year notes offer more yield than shorter-maturity Treasuries, while 10-year debt is susceptible to the risk that inflation will quicken over the coming decade.


The Treasury sold $32 billion of two-year securities yesterday. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, climbed to 3.32, the highest level since April.


The five-year notes scheduled for sale today yielded 1.31 percent in pre-auction trading, compared with 1.436 percent at the previous sale of the securities on Sept. 25. Investors bid for 2.67 times the amount of available debt last month, up from 2.38 times in August.

The government will conclude this week’s auctions with $29 billion of seven-year notes tomorrow.


Fed Tapering


Fed policy makers last month refrained from slowing stimulus to await further evidence of an economic recovery.


U.S. central bankers will pare the monthly pace of asset buying to $70 billion from $85 billion at their March 18-19 meeting, according to the median of responses in a Bloomberg survey of analysts.

Economists had expected the Fed to reduce purchases to $80 billion last month, according to a Bloomberg survey before the September meeting.


Price swings of Treasuries indicate most bondholders aren’t anticipating a sudden jump in borrowing costs. Bank of America Merrill Lynch’s MOVE Index, a measure of volatility, was at 58.54 yesterday, the least since May 16. It has fallen from this year’s high of 117.89 in July.


Economists forecast no change in retail sales after a 0.2 percent advance in August. A gauge of consumer confidence fell to a five-month low in October, according to the median estimate of economists in Bloomberg survey.


Home Prices


A separate report will say the S&P/Case-Shiller index of property values in 20 cities increased 12.5 percent in August from a year earlier, the most since February 2006.


The Fed won’t start cutting its purchases until March, said Yoshiyuki Suzuki, who helps oversee the equivalent of $58.3 billion as head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo.

“Eventually, the Fed will start to taper,” he said. Ten- year yields will rise to 3 percent by March, he said.


The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was 2.19 percentage points. It has widened from this year’s low of 1.81 percentage points in June.

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