Friday, January 18, 2019
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Treasury Volatility Approaches Record Low Before Bernanke Speech

Treasury market volatility fell to a six-month low amid speculation Federal Reserve Chairman Ben S. Bernanke will give support to the case for maintaining bond purchases in a speech today.

The Merrill Lynch MOVE Index, a measure of price swings, slid to 58.31 yesterday, approaching the record of 48.87 set on May 9. Ten-year yields were little changed before a report tomorrow that economists said will show retail sales increased in October. Bernanke is scheduled to speak at 7 p.m. in Washington. Vice Chairman Janet Yellen, in her confirmation hearing last week to be the next Fed chairman, said she'll ensure stimulus isn't removed too soon.

"Bernanke and Yellen are both dovish and we expect more of the same from him today," said Soeren Moerch, head of fixed-income trading at Danske Bank A/S in Copenhagen. "Tapering will happen, but we expect the Fed to communicate clearly to the public how and when. This will help to reduce volatility."

Benchmark 10-year yields were at 2.68 percent as of 7:36 a.m. New York time, according to Bloomberg Bond Trader prices. Yields fell earlier today to 2.66 percent, the least since Nov. 8. The price of the 2.75 percent note due in November 2023 was at 100 21/32.

After sending 10-year Treasury yields more than a percentage point higher from their 2013 low by fueling taper expectations in May and June, Fed officials are weighing when to reduce debt purchases that have swelled the central bank's balance sheet to a record $3.91 trillion.
Global Volatility

Bond price swings are also narrowing in Japan and Europe, which both added to efforts this year to support their economies by putting downward pressure on interest rates. A gauge of 60-day volatility in Japanese government debt fell this month to the lowest level since February. For Europe, the measure dropped in October to levels not seen since May.

The People's Bank of China plans to cut the ratio of bonds it holds until maturity as it steps back from day-to-day intervention in the domestic foreign-exchange market, Market News International reported, citing PBOC Governor Zhou Xiaochuan as saying in a study guide.

The yuan's trading band will be widened in an "orderly way" as China seeks to enhance the currency's two-way flexibility, Zhou wrote in the guidebook explaining reforms outlined last week following a Communist Party meeting.

The yield on five-year notes climbed two basis points to 1.33 percent.
Yield Forecasts

U.S. 10-year yields will rise to 2.90 percent in March and to 3.39 percent at the end of 2014, according to weighted-average estimates in a Bloomberg survey of analysts.

"If we have more good data next month, then the market will guess we will have tapering start in December," said Kim Youngsung, who helps oversee about $105 billion as head of fixed income in Seoul at Samsung Asset Management Co., South Korea's largest private bond investor.

U.S. retail sales rose 0.1 percent in October from September, while consumer prices were unchanged and existing-home sales fell, according to surveys of economists by Bloomberg News before the reports tomorrow. Data today will show employment costs rose in the third quarter, a separate economist poll shows.

Figures earlier this month showed gains in manufacturing, gross-domestic-product growth and employment.
Yield Curve

Treasury trading volumes at ICAP Plc, the largest inter-dealer broker of U.S. government debt, was $233.8 billion yesterday, below the 2013 average of $314.8 billion. It fell to a 2013 low of $147.8 billion on Aug. 9. The high was $662.3 billion on May 22.

The difference between five- and 10-year yields was 1.35 percentage points, after reaching 1.37 percentage points on Nov. 14, the most since August 2011, as investors bet Yellen will keep short-term rates low.

The U.S. central bank buys $85 billion of Treasuries and mortgage-backed securities each month to put downward pressure on borrowing costs. Officials will pare the purchases to $70 billion a month at their March 18-19 meeting, according to the median economist estimate in a Bloomberg survey on Nov. 8.

The Fed will buy as much as $3.5 billion of bonds maturing between February 2021 and November 2023 today.

The Treasury will offer $13 billion of 10-year Treasury inflation protected securities on Nov. 21. The U.S. previously sold the debt on Sept. 19 at a yield of 0.5 percent, the highest since July 2011. TIPs pay interest at lower rates than regular Treasuries on a principal amount that's adjusted based on the Labor Department's consumer price index.

The 10-year break-even rate was at 2.20 percentage points compared to the average of 2.31 percentage points over the past 12 months.

To contact the reporter on this story: Anchalee Worrachate in London at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editor responsible for this story: Paul Dobson at This email address is being protected from spambots. You need JavaScript enabled to view it.


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Contributing Editors

  • adrian muller has conducted seminars for the chicago board of trade, including a key series in 1999 which cautioned about a top in the equity markets (see his article “top experts and statistics on the dow”). adrian muller has appeared on cable tv financial programs with analysis on the futures markets and equity market directional forecasts. he has been quoted in barron's, the wall street journal, and futures magazine.

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