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bond futures drop

May 9th, 2013

Bond Futures – U.S. 30-year bonds rose, pushing the yield down from the highest in a month, amid speculation rates near 3 percent and falling inflation expectations will attract investors when the nation sells $16 billion of debt today.

The securities advanced for a second day before a government report that economists said will show initial claims for jobless insurance climbed from a five-year low last week. Treasuries have returned 0.4 percent in 2013, according to Bank of America Merrill Lynch indexes, even as equities have surged, as the Federal Reserve’s debt purchases kept borrowing costs under downward pressure.

“Treasuries have been remarkably resilient despite the rally in global equities, reflecting abundant liquidity provided by central banks,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “The recent concession at the longer end should ensure the 30-year bond auction is comfortably absorbed.”

The U.S. 30-year yield dropped two basis points, or 0.02 percentage point, to 2.96 percent at 7:01 a.m. New York time, according to Bloomberg Bond Trader data. The 3.125 percent bond due in February 2043 climbed 15/32, or $4.69 per $1,000 face amount, to 103 5/32. The rate rose to 3.02 percent yesterday, the highest since April 4.

The rate on the May 2023 securities sold yesterday fell three basis points to 1.79 percent.

Bond Futures: Attractive Yields

Treasuries slid earlier in the month after a U.S. Labor Department report on May 3 showed employers hired more workers in April than economists predicted, while the unemployment rate unexpectedly fell to a four-year low of 7.5 percent.

U.S. government securities declined 0.4 percent this month through yesterday, according to the Merrill Lynch indexes. Thirty-year bonds dropped 1.7 percent.

The past increase in rates attracted money managers, said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender.

“A 3 percent yield is not easy to find,” Oh’e said. “Investors would like to buy.”

The rate compares with the dividend yield of 2.04 percent on the Standard & Poor’s 500 Index. The equities gauge rose 15 percent this year when reinvested dividends are included.

The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a measure of trader expectations for consumer prices over the life of the debt, fell to as low as 2.24 percentage points today, the least since September. The five-year average is 2.03 percentage points.

Bond Futures: Global Easing

“I expect the auction to do well,” said Ali Jalai, a Treasuries trader in Singapore at Scotiabank, a unit of Canada’s Bank of Nova Scotia (BNS), one of the 21 primary dealers that trade directly with the Federal Reserve. “We’re around 3 percent and there’s no inflation right now.”

The Bank of Korea cut interest rates, helping fuel investor demand for income after Australia, the euro area and India trimmed borrowing costs this month.

Governor Kim Choong Soo and his board lowered South Korea’s benchmark rate to 2.5 percent from 2.75 percent. Australia cut borrowing costs to a record two days ago and the European Central Bank did the same on May 2. India cut its benchmark rate last week.

The Fed is buying $85 billion of Treasury and mortgage debt each month to support the economy by putting downward pressure on borrowing costs. It is scheduled to purchase as much as $1.5 billion of TIPS maturing between July 2017 and February 2043 today, according to the Fed Bank of New York’s website.

Bond Futures: Auction Results

A Labor Department report today will show applications for unemployment insurance payments rose 11,000 to 335,000 in the week ended May 4, according to the median of 48 estimates in a Bloomberg survey of economists. The previous figure of 324,000 was the lowest since January 2008.

Today’s 30-year auction, scheduled for 1 p.m. in Washington, is the last of three U.S. sales of coupon-bearing debt this week. The government auctioned $24 billion of 10-year notes yesterday and $32 billion of three-year debt on May 7.

The 10-year sale drew orders to buy worth 2.70 times the amount of securities sold, compared with an average of 2.92 for the previous 10 sales.

Bidding for the three-year notes amounted to 3.38 times the amount available. The average for the prior 10 auctions was 3.57.

The three sales will raise $12.4 billion of new cash, as maturing securities held by the public total $59.6 billion, according to the Treasury.

The 30-year bonds being sold today yielded 2.98 percent in pre-auction trading, versus 2.998 percent at a sale of the securities on April 11.

- Wes Goodman in Singapore and David Goodman in London at Bloomberg.