US trea­suries de­cline most in 2016

The Pak Banker - - BUSINESS -

Trea­suries fell, with yields ris­ing the most in two months, as oil had its best day in seven years and U.S. stocks halted a five-day de­cline.

Bench­mark 10-year notes snapped a six-day rally that pushed yields near record-low lev­els. Bonds de­clined as crude prices rose 11 per­cent and af­ter a re­port showed U.S. retail sales in­creased for a third straight month in Jan­uary. The yield on the 10-year note dropped on Thurs­day to within 15 ba­sis points of the 1.379 per­cent record low set in July 2012.

Trea­suries still gained for a third straight week as tur­moil in global fi­nan­cial mar­kets drove de­mand for the rel­a­tive safety of U.S. govern­ment debt and as traders pared bets that the Fed­eral Re­serve will raise in­ter­est rates this year. Fed Chair Janet Yellen said this week that the cen­tral bank may de­lay in­creases though not stop them com­pletely, not­ing that weak­en­ing stocks posed a risk to the econ­omy.

"It's a good re­prieve -- I don't know how long-lived that'd be, but it's def­i­nitely a good change," said Aaron Kohli, an in­ter­est-rate strate­gist in New York with BMO Cap­i­tal Mar­kets, one of the 22 pri­mary deal­ers that trade with the Fed. "It does re­mind us that the mar­ket has be­come very pes­simistic, and the U.S. con­sumer still at least has a lit­tle bit of strength."

The bench­mark Trea­sury 10-year yield rose nine ba­sis points, or 0.09 per­cent­age point, to 1.75 per­cent at 5 p.m. in New York, ac­cord­ing to Bloomberg Bond Trader data. The price of the 1.625 per­cent se­cu­rity due in Fe­bru­ary 2026 fell 26/32, or $8.13 per $1,000 face amount, to 98 7/8. The yield fell as low as 1.53 per­cent Thurs­day. Thirty-year bonds, which are sen­si­tive to the out­look for in­fla­tion, led de­clines, with yields ris­ing 11 ba­sis points to 2.6 per­cent.

The 14-day rel­a­tive strength in­dex for 10-year note yields rose to about 34, af­ter fall­ing below the thresh­old of 30 some traders see as a sign a se­cu­rity has moved too fast. The 0.2 per­cent Jan­uary retail sales in­crease matched the pre­vi­ous month's ad­vance that was ini­tially re­ported as a de­cline, Com­merce Depart­ment data showed Fri­day. The me­dian fore­cast in a Bloomberg sur­vey called for a 0.1 per­cent gain in Jan­uary.

"We're still in rally mode, we're just sim­ply not crouch­ing wait­ing for the next blow," said Jim Vo­gel, head of in­ter­est-rate strat­egy at FTN Fi­nan­cial in Mem­phis, Ten­nessee. "This is the se­cond av­er­age-to-good retail sales in the past six months."

The prob­a­bil­ity the Fed will fol­low its De­cem­ber rate in­crease with an­other in 2016 has dropped to 30 per­cent from a 93 per­cent chance as­signed at the start of the year, fu­tures con­tracts in­di­cate. The cal­cu­la­tion is based on the as­sump­tion that the ef­fec­tive fed funds rate will trade at the middle of the new tar­get range af­ter the next in­crease.

Econ­o­mists still see Trea­sury yields ris­ing this year, though they're cut­ting their fore­casts for how far. The lat­est pre­dic­tion for the 10-year note is 2.46 per­cent, down from a pro­jec­tion of as high as 2.82 per­cent in Jan­uary, based on a Bloomberg sur­vey with the most re­cent fore­casts given the heav­i­est weight­ing.

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