Treasuries fell on speculation the U.S. economy isn’t slowing enough to justify keeping yields at a record low, raising concern demand will wane at a $16 billion 30-year sale today.
Bonds halted a three-day surge after the 10-year real yield, which accounts for inflation, dropped to negative 1.45 percent yesterday, approaching the least since 2008. The amount investors earn from 30-year bonds instead of two-year notes shrank to 3.33 percentage points, a level not seen in 10 months. Treasury rates will rise this year, Credit Agricole Corporate & Investment Bank said, even as it lowered its forecasts.
“The yield is too low” in the Treasury market, said Yoshiyuki Suzuki, Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co., which has the equivalent of $71.6 billion in assets. “Investors are too pessimistic on the U.S. economy.” Fukoku has been trimming its holdings, Suzuki said.
Ten-year yields climbed five basis points to 2.19 percent as of 7:02 a.m. in London, according to Bloomberg Bond Trader prices. The 2.125 percent note maturing in August 2021 fell 13/32, or $4.06 per $1,000 face amount, to 99 13/32.
The rate fell to 2.0346 percent Aug. 9, the least ever. The figure translated into negative 1.57 percent after subtracting inflation, the lowest real yield since September 2008.
Credit Agricole predicted the U.S. will avoid a double-dip recession, according to a report by David Keeble, global head of interest-rate strategy in New York, and Orlando Green, an interest-rate strategist in London.
Ten-year rates will climb to 3 percent by year-end, according to the unit of the world’s sixth largest bank by assets, revising its previous prediction of 3.8 percent. Two- year yields will rise to 0.25 percent, the company said in the document distributed yesterday in the U.S., replacing its earlier estimate of 1.5 percent.