Treasury 3- to 30-Year Yield Difference Widens Before Auctions The difference between yields on Treasury 3-year notes and 30-year bonds widened to the most in almost two years before the U.S. sells the securities as part of its auctions this week. The so-called spread increased to 3.14 percentage points yesterday, the steepest level since September 2011, according to data compiled by Bloomberg. The gap signals investors are demanding higher yields to own bonds instead of riskier assets with potentially greater returns, such as stocks, as the economy grows. The U.S. is scheduled to sell $32 billion of 3-year notes today, $24 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on Aug. 8. “The economy is improving,” said Hajime Nagata, who helps oversee the equivalent of $120.3 billion as an investor in Tokyo at Diam Co., a unit of Dai-ichi Life Insurance Co. “Thirty-year bonds are not favorable, people prefer to hold stocks.” Benchmark 10-year yields were little changed at 2.635 percent as of 9:55 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.75 percent note due in May 2023 was 92 13/32. Yields were 0.59 percent on 3-year notes and 3.72 percent for 30-year bonds. Treasuries fell yesterday as a report showed service industries expanded more than forecast in July, adding to signs the U.S. economy is improving and boosting speculation the Federal Reserve will reduce its stimulus program by year-end. The Institute for Supply Management’s non-manufacturing index increased to 56 July from 52.2 the prior month, a report from the Tempe, Arizona-based group showed yesterday. The median forecast in a Bloomberg News survey of economists called for a gain to 53.1. The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on interest rates. Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index fell to 72.66 basis points yesterday, approaching the lowest level since May. The average in 2013 is 67.21 basis points.
Posted on: Tue, 06 Aug 2013 01:34:08 +0000