(Bloomberg) -- Treasury yieldswere in the tightest range in nearly seven years as traders weighed prospects for Federal Reserve bond tapering against concern tension between the U.S. and Russia over Crimea will increase.
The 10-year yield moved in a range of less than two basis points today, the least since April 9, 2007, and averaged 5.8 basis points this year compared with 8.3 points in the past five years. Economists say the Fed will cut monthly bond purchases to $55 billion and end its threshold for a 6.5% jobless rate for when it will raise interest rates, according to Bloomberg surveys. Western leaders vowed further sanctions on Russia after President Vladimir Putin set in motion Crimeas accession.
The Fed will probably be slightly dovish given some weather-related weakness weve seen in recent data but we expect the taper to continue, said Soeren Moerch, head of fixed- income trading at Danske Bank A/S in Copenhagen. The market is also watching developments in Ukraine, whether the problem will spread. We expect the 10-year yield to move within its recent range of 2.50 to 2.80% in the near term.
The benchmark 10-year yield was little changed at 2.67% at 6:50 a.m. in New York after falling two basis points, or 0.02 percentage point, yesterday, according to Bloomberg Bond Trader data. The price of the 2.75% note maturing in February 2024 was 100 22/32.
The Fed will focus on inflation and keep its key borrowing rate at almost zero until late 2015, Bill Gross, manager of the worlds biggest bond fund, said yesterday.
The new Fed, led for the first time by Chair Janet Yellen, will be revealed in detail, Gross, co-founder of Pacific Investment Management Co. in Newport Beach, California, wrote via Twitter. Expect focus on inflation, less focus on employment, he wrote.
The Federal Open Market Committee will end its jobless-rate threshold and switch to a qualitative guidance for when it will consider raising its benchmark, according to 41 of 54 economists in a March 14-17 Bloomberg survey. Policy makers will cut monthly bond purchases to $55 billion from $65 billion, according to the median estimate of economists. The central banks benchmark rate has remained in a range of zero to 0.25% since 2008.
The Feds preferred gauge of inflation, known as the personal consumption expenditures deflator, has been below the central banks 2% goal for 21 consecutive months and was at 1.2% in January from a year earlier.
The index has fallen below 1% three times in the past year and has never exceeded 1.5%. The last time inflation based on the Feds measure was so low during an expansion was in 1998.
U.S. Vice President Joe Biden yesterday called Russias move into Crimea nothing more than a land grab and said the U.S. may boost its participation in NATO military exercises in the Baltic region. British Prime Minister David Cameron vowed to push European leaders to agree on further measures against Russia when they meet tomorrow.
In Ukraine, the Defense Ministry authorized the use of live ammunition in self-defense in Crimea after a service member was killed and two others injured yesterday by masked gunmen who stormed a military installation.
Investors outside the U.S. boosted their Treasury holdings for a sixth month in January, increasing them by 0.5% to a record $5.83 trillion, Treasury data showed yesterday. Overseas funds held 48.9% of the $11.83 trillion in publicly tradable U.S. government debt outstanding in January.
China, the largest foreign lender to the U.S., increased its position by 0.3% to $1.27 trillion. Russia cut its stake by 4.9% to $131.8 billion, the least since July, according to Treasury data.
Treasuries returned 2% this year through yesterday, according to Bloomberg World Bond Indexes. The Standard & Poors 500 Index gained 1.8% including reinvested dividends.
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