Treasuries Rise; Durables Orders Have Biggest Drop in Two Years
Treasuries Rise; Durables Orders Have Biggest Drop in Two Years
April 27 (Bloomberg) -- U.S. 10-year Treasury rose after a government report showed orders for durable goods in March had their biggest decline in more than two years, a sign the economy is slowing.
Orders unexpectedly fell 2.8 percent last month after falling a revised 0.2 percent in February, the Commerce Department said today. Forecasts called for an increase in March orders. Excluding transportation equipment, orders fell 1 percent after falling 0.2 percent.
``This looks awful,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``Markets will react.''
The 4 percent note maturing in February 2015 rose 1/4, or $2.50 per $1,000 face amount, to 98 1/8 as of 8:46 a.m. in London, according to bond broker Cantor Fitzgerald LP. The yield fell 3 basis points, or 0.3 percent point, to 4.24 percent.
The U.S. economy probably grew 3.5 percent in the first quarter, slowing from a 3.8 percent pace in the previous three months, according to the median estimate of 82 economists in a Bloomberg survey. The Commerce Department reports quarterly gross domestic product tomorrow.
``We will probably see some reasonably sluggish economic data over the next month and that will be bad news for bond yields,'' said Rory Robertson, an interest-rate strategist at Macquarie Bank in Sydney. He said 10-year yields may fall to 4 percent over the next three months.
Manufacturing Indexes
A monthly index of manufacturing in the Chicago area is expected to fall to 62.5 in April from 69.2 percent in March, according to the median estimate. The Purchasing Managers Association of Chicago will issue its index April 29. A reading above 50 signals expansion.
The Institute for Supply Management may report on May 2 its National factory index fell to 55 in April from 55.2 in March, the fifth month of declines, a separate survey shows.
Expectations about the level of U.S. interest rates at the end of the year fell today after the report. The yield on the December futures contract was 3.92 percent today, down from 3.98 percent and from this year highest, 4.34 percent, reached March 28. The contracts settle at a three-month lending rate that averaged 21 basis points higher than the Fed's target over the past decade.
Fed policy makers raised the target for overnight bank lending by a quarter percentage point to 2.75 percent at their last meeting on March 22 and stuck to a ``measured'' stance on future increases. They are expected to raise again on May 3, to 3 percent, according to all 81 economists in a Bloomberg News survey. It will be the eighth increase since June. The European Central Bank has kept its key interest rate at 2 percent since June 2003.
The U.S. Treasury plans to auction $24 billion of two-year notes today. The Treasury yesterday sold $9 billion of five-year Treasury Inflation-Protected Securities, or TIPS, at a 1.2 percent yield.
To contact the reporters on this story: Vivianne C. Rodrigues in New York at vrodrigues@bloomberg.net
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