(Bloomberg) -- Treasury market volatility declined to a 10-month low as investors tried to discern how much winter weather is responsible for slowing the economy.

Benchmark 10-year note yields traded at almost the highest level since January before a report forecast to show retail sales rose in February after falling unexpectedly the prior month, according to a Bloomberg survey before the March 13 data, following stronger-than-projected jobs growth last month. The U.S. will auction $30 billion of three-year securities, the first of three sales of notes and bonds this week.

“There’s a little optimism with respect to people’s expectations for the economy,” said Dan Mulholland, head of Treasury trading at BNY Mellon Capital Markets in New York. “Supply is a factor here, as well.”

U.S. 10-year yields rose one basis point, or 0.01 percentage point, to 2.79% as of 10:19 a.m. in New York, according to Bloomberg Bond Trader data. Yields reached 2.82% on March 7, the highest level since Jan. 23. The 2.75% security due February 2024 fell 3/32 or 94 cents per $1,000 face amount to 99 21/32.

Volatility in U.S. debt measured by the Bank of America Merrill Lynch MOVE Index fell to 55.68 yesterday, the lowest level since May 10.

In addition to the three-year notes, the Treasury is scheduled to sell $21 billion in 10-year debt tomorrow and $13 billion in 30-year bonds the next day.

 'CONTINUE TAPERING'

 The better-than-forecast jobs report last week bolstered speculation the Federal Reserve will continue to trim the monthly bond purchases it makes under the quantitative-easing stimulus strategy, designed to support the economy and keep borrowing costs low.

“It is clear that the Fed will continue tapering and this has given a lift to yields,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We need more data in order to give yields another lift.”

The 10-year yield may climb to as much as 3.25% by September, von Mehren said. The median of 74 economists’ and analysts’ predictions compiled by Bloomberg is for the rate to reach 3.20% in the third quarter.

Treasuries fell 0.6% in the month, based on the Bloomberg U.S. Treasury Bond Index. The 10-year note traded in the narrowest range in February since April 2007.

 WINTER WEATHER

Winter weather in the U.S. has slowed housing, consumption and employment, with job gains in December and January falling short of the levels projected by economists in Bloomberg News surveys.

U.S. employers added 175,000 positions in February, beating the projection of 149,000 among economists, based on Labor Department figures March 7.

Retail sales in February likely rose 0.2% after unexpectedly falling 0.4% the month before, according to the median forecast of 84 economists in a Bloomberg News survey. The Commerce Department will release the data March 13 in Washington, D.C.

Data today will show job openings increased in January while wholesalers boosted inventories, according to the Bloomberg surveys.

The three-year notes scheduled for sale today yielded 0.81% in pre-sale trading. The yield hasn’t been so high at the monthly auctions since September.

AUCTION BIDDING

“I don’t suspect the supply is going to be a problem,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “That the 10-year is trading at 2.78% instead of 2.90% suggests that this recent infatuation with positive data from the jobs report has not fully convinced the bond market that it’s full speed ahead.”

At the last offering Feb. 11, investors placed bids for 3.42 times the amount of debt available. The average for the past 10 sales including last month’s is 3.29.

Indirect bidders, the investor class that includes central banks outside the U.S., purchased 42% of the securities. It was the most since August 2011.

Fed Chair Janet Yellen said last month the central bank will probably maintain its strategy of trimming the debt-buying program it uses to support the economy.

Policy makers have reduced the monthly debt purchases by $10 billion a month in January and February, to $65 billion. The Fed’s next policy meeting is March 18-19.

Investors withdrew $11.9 million from exchange-traded funds of U.S. fixed-income securities on March 10, compared with the 20-day average of inflows of $610 million, according to ETF data compiled by Bloomberg.

Investors have favored ETFs U.S. stocks, which took in $3 billion on March 10, more than the 20-day average of $2.1 billion, Bloomberg data show.

U.S. fixed-income ETFs have taken in $9 billion so far this year, compared with $938.7 million in outflows from domestic equity funds, Bloomberg data show.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.