Treasuries dropped after a report showed consumer confidence rose to a seven-year high as the Federal Reserve began its two-day meeting where it is projected to end its bond-buying program.
Benchmark 10-year note yields rose as the central bank said in September that it would conclude quantitative easing this month if the economy keeps improving. The U.S will sell $35 billion of five-year notes tomorrow. It auctioned $29 billion of two-year notes today at the lowest yield in five months. The sale was rated a “3” on a scale of one to five according to four of the Fed’s 22 primary dealers. “The market is focused mostly on the Fed,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “The assumption is that QE will be ended. There’s been some winding down of positions in front of the Fed.”
Ten-year note yields rose three basis points, or 0.03 percentage point, to 2.29 percent as of 3:19 p.m. New York time, according to Bloomberg Bond Trader prices. The price of the 2.375 percent security due in August 2024 fell 7/32, or $2.19 per $1,000 face amount, to 100 3/4.
Current two-year notes yields added one basis point to 0.39 percent.
Note Auction
The two-year auction drew a yield of 0.425 percent, the lowest since May and matching the forecast in a Bloomberg News survey of eight of the Fed’s primary dealers. “Two-year yields levels were never really a deterrent to investors,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., a primary dealer. “We’re probably going to see a minimum amount of hiking within the two-year time frame and that gave investors peace of mind.”
The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.11, the lowest since September 2013 and compared with an average of 3.42 at the past 10 sales. Indirect bidders, a class of investors that includes foreign central banks, bought 36.7 percent of the sale, compared with 40.9 percent of the securities at last month’s sale, and an average of 29.8 percent at the past 10 auctions.
Bid Detail
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 16.2 percent of the notes, compared with 16.1 percent at the last sale and an average of 20.3 percent at the past 10.
Treasuries investors were the most neutral since January as of the week ended yesterday, according to a survey by JPMorgan Chase & Co.
Investors raised neutral bets to 67 percent from 65 percent to reach the highest level since the week ending Jan. 20. Investors cut the proportion of net shorts to seven percentage points, from nine percentage points the previous week. Outright shorts dropped to 20 percent, the least since April, from 22 percent the previous week. Outright longs were unchanged at 13 percent.
U.S. two-year notes are among the securities most sensitive to what the Fed does with its benchmark, the target for overnight lending between banks, which has been in a range of zero to 0.25 percent since December 2008.
Fed Policy
Policy makers repeated last month that they plan to maintain the current target for a “considerable time” after asset purchases end, especially if projected inflation continues to run below the central bank’s 2 percent target. As the Fed concludes its purchases, investors are being left with more long-maturity debt, since the Fed has been buying Treasuries due in four to 30 years.
“There’s a natural bias to higher yields with the likelihood of QE ending tomorrow,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. The government will auction $15 billion of two-year floating-rate debt tomorrow. It plans to sell $29 billion of seven-year securities Oct. 30.
The Conference Board’s consumer confidence index rose to 94.5 in October, the highest since October 2007, from 89 the prior month, the New York-based private research group said today. The median forecast of economists surveyed by Bloomberg projected a reading of 87.
Tradeweb to Start Trading Investment Grade U.S. Corporate Bonds
Tradeweb Markets LLC will start trading investment grade U.S. corporate bonds tomorrow, Chief Executive Officer Lee Olesky told reporters during a presentation today.
Tradeweb is owned by a consortium including Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with Tradeweb and Thomson Reuters in facilitating bond and swap trades between investors and banks, and in providing financial data and news to investors.
Junk-Bond Buying Seen Boosted by Economy, Moody’s Says.
Investors will continue buying junk debt as the U.S. economy improves even after the Federal Reserve ends its asset purchases that have forced corporate bond yields lower, according to Moody’s Investors Service.
“Gradually accelerating economic growth and a relatively low level of debt maturities will support investors’ expectations that the default rate will remain low for another year or more,” Bill Wolfe, a senior vice president at Moody’s who led the report, said in a statement. “They therefore will continue to put their money into lower-rated companies.”
The credit grader expects default rates of risky borrowers in the U.S. to rise to 2.76 percent by September 2015 from 1.71 percent last month. The U.S. speculative-grade default rate’s long-term average is about 4.5 percent, according to a Moody’s statement on Sept. 16. High-risk, high-yield debt is ranked below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.
As long as the default rate remains “relatively benign, investors can then think they’re not going to lose money and can continue to support the asset class,” Wolfe said in a telephone interview from Toronto.
Since 2011, the Fed’s quantitative easing program “has played a major role in expanding the supply of credit to low-rated companies,” according to Wolfe. Junk-rated issuers have rushed to take advantage of historically cheap borrowing costs as strong investor demand pushed yields to record lows. Speculative-grade bond yields dropped to an unprecedented 5.69 percent in June, according to the Bank of America Merrill Lynch U.S. High Yield Index.
The average ratio of debt to earnings before interest, taxes, depreciation and amortization of junk issuers rose to 5.1 times in the year ended March, the highest level since at least 2005, Moody’s data show.
source: Bloomberg
Benchmark 10-year note yields rose as the central bank said in September that it would conclude quantitative easing this month if the economy keeps improving. The U.S will sell $35 billion of five-year notes tomorrow. It auctioned $29 billion of two-year notes today at the lowest yield in five months. The sale was rated a “3” on a scale of one to five according to four of the Fed’s 22 primary dealers. “The market is focused mostly on the Fed,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “The assumption is that QE will be ended. There’s been some winding down of positions in front of the Fed.”
Ten-year note yields rose three basis points, or 0.03 percentage point, to 2.29 percent as of 3:19 p.m. New York time, according to Bloomberg Bond Trader prices. The price of the 2.375 percent security due in August 2024 fell 7/32, or $2.19 per $1,000 face amount, to 100 3/4.
Current two-year notes yields added one basis point to 0.39 percent.
Note Auction
The two-year auction drew a yield of 0.425 percent, the lowest since May and matching the forecast in a Bloomberg News survey of eight of the Fed’s primary dealers. “Two-year yields levels were never really a deterrent to investors,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., a primary dealer. “We’re probably going to see a minimum amount of hiking within the two-year time frame and that gave investors peace of mind.”
The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.11, the lowest since September 2013 and compared with an average of 3.42 at the past 10 sales. Indirect bidders, a class of investors that includes foreign central banks, bought 36.7 percent of the sale, compared with 40.9 percent of the securities at last month’s sale, and an average of 29.8 percent at the past 10 auctions.
Bid Detail
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 16.2 percent of the notes, compared with 16.1 percent at the last sale and an average of 20.3 percent at the past 10.
Treasuries investors were the most neutral since January as of the week ended yesterday, according to a survey by JPMorgan Chase & Co.
Investors raised neutral bets to 67 percent from 65 percent to reach the highest level since the week ending Jan. 20. Investors cut the proportion of net shorts to seven percentage points, from nine percentage points the previous week. Outright shorts dropped to 20 percent, the least since April, from 22 percent the previous week. Outright longs were unchanged at 13 percent.
U.S. two-year notes are among the securities most sensitive to what the Fed does with its benchmark, the target for overnight lending between banks, which has been in a range of zero to 0.25 percent since December 2008.
Fed Policy
Policy makers repeated last month that they plan to maintain the current target for a “considerable time” after asset purchases end, especially if projected inflation continues to run below the central bank’s 2 percent target. As the Fed concludes its purchases, investors are being left with more long-maturity debt, since the Fed has been buying Treasuries due in four to 30 years.
“There’s a natural bias to higher yields with the likelihood of QE ending tomorrow,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. The government will auction $15 billion of two-year floating-rate debt tomorrow. It plans to sell $29 billion of seven-year securities Oct. 30.
The Conference Board’s consumer confidence index rose to 94.5 in October, the highest since October 2007, from 89 the prior month, the New York-based private research group said today. The median forecast of economists surveyed by Bloomberg projected a reading of 87.
Tradeweb to Start Trading Investment Grade U.S. Corporate Bonds
Tradeweb Markets LLC will start trading investment grade U.S. corporate bonds tomorrow, Chief Executive Officer Lee Olesky told reporters during a presentation today.
Tradeweb is owned by a consortium including Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with Tradeweb and Thomson Reuters in facilitating bond and swap trades between investors and banks, and in providing financial data and news to investors.
Junk-Bond Buying Seen Boosted by Economy, Moody’s Says.
Investors will continue buying junk debt as the U.S. economy improves even after the Federal Reserve ends its asset purchases that have forced corporate bond yields lower, according to Moody’s Investors Service.
“Gradually accelerating economic growth and a relatively low level of debt maturities will support investors’ expectations that the default rate will remain low for another year or more,” Bill Wolfe, a senior vice president at Moody’s who led the report, said in a statement. “They therefore will continue to put their money into lower-rated companies.”
The credit grader expects default rates of risky borrowers in the U.S. to rise to 2.76 percent by September 2015 from 1.71 percent last month. The U.S. speculative-grade default rate’s long-term average is about 4.5 percent, according to a Moody’s statement on Sept. 16. High-risk, high-yield debt is ranked below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.
As long as the default rate remains “relatively benign, investors can then think they’re not going to lose money and can continue to support the asset class,” Wolfe said in a telephone interview from Toronto.
Since 2011, the Fed’s quantitative easing program “has played a major role in expanding the supply of credit to low-rated companies,” according to Wolfe. Junk-rated issuers have rushed to take advantage of historically cheap borrowing costs as strong investor demand pushed yields to record lows. Speculative-grade bond yields dropped to an unprecedented 5.69 percent in June, according to the Bank of America Merrill Lynch U.S. High Yield Index.
The average ratio of debt to earnings before interest, taxes, depreciation and amortization of junk issuers rose to 5.1 times in the year ended March, the highest level since at least 2005, Moody’s data show.
source: Bloomberg