Updated March 27 at 12:27am

Treasuries fall before U.S. bond sale amid stimulus speculation


NEW YORK - Treasuries fell before the U.S. auctions $13 billion of 30-year bonds at what may be a record low yield amid speculation the Federal Reserve may take further measures to spur economic growth.

U.S. government securities earlier pared losses after reports showing weekly claims for U.S. jobless benefits unexpectedly rose and inflation remained subdued. An auction of 10-year notes yesterday drew a record low yield as investors sought a refuge from Europe’s financial crisis.

“The street is more concerned about supply than the numbers for the data,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “It’s always tricky with the 30-year, but we’ll probably see good sponsorship.”

The 30-year yield increased two basis points, or 0.02 percentage point, to 2.73 percent at 12:19 p.m. New York time after falling one basis point earlier, according to Bloomberg Bond Trader prices.

The 10-year note yield climbed three basis points to 1.62 percent after touching 1.59 percent earlier.

As the Treasury prepares to auction long bonds, the Fed purchased $2.04 billion of Treasuries today due from February 2036 to February 2042 as part of its Operation Twist program. The central bank is replacing $400 billion of shorter-term securities in its holdings with longer-term bonds through this month to keep borrowing costs down.

Policy function

“It’s not a situation where the Treasury is selling directly to the Fed, thereby printing dollars to fund government consumption, but rather a function of the Fed’s easy monetary policy as it manifests itself in buying to flatten the Treasury curve,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

The U.S. 30-year bonds being sold today yielded 2.74 percent in pre-auction trading, compared with 3.09 percent at the previous sale on May 10 and a record auction low of 2.925 percent in December.

Treasuries pared losses after data showed claims for jobless benefits in the U.S. unexpectedly climbed by 6,000 to 386,000 in the week ended June 9 from a revised 380,000 the prior week that was more than first estimated, Labor Department figures showed today in Washington. Economists projected claims would fall to 375,000, according to the median estimate in a Bloomberg News survey.

CPI slides

The cost of living in the U.S. fell in May by the most in more than three years as fuel prices retreated, buttressing Fed projections that cheaper commodities will help reduce inflation. The consumer-price index declined 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month, the Labor Department reported today in Washington. Economists projected a 0.2 percent decrease.

“It’s going to help the case for the doves that want to build accommodation,” said Jacob Oubina, a senior U.S. economist at Royal Bank of Canada’s RBC Capital Markets unit in New York, one of 21 primary dealers that trade Treasuries with the Fed. “Headline CPI is decelerating at a faster pace than even we had anticipated.”

The difference in yields between 10-year notes and Treasury Inflation Protected Securities, a measure of traders’ expectations for inflation known as the break-even rate, touched 2.09 percentage points from this year’s high of 2.45 percentage points in March. It dropped to 2.01 percentage points on May 30, the lowest since Jan. 17. The gap has averaged 2.15 percentage points in the past decade.

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