U.S. Treasuries fell, extending five weeks of losses, as Federal Reserve Bank of Cleveland President Sandra Pianalto said inflation is ``uncomfortably high.''
Fifteen of the 21 primary dealers that underwrite the government's debt boosted their year-end estimate for the central bank's target rate or the 10-year note's yield. This week the government will release reports on consumer and wholesale prices. Yields on 10-year notes exceed two-year securities by 15 basis points, the most since May 2006.
``A lot of people are throwing in the towel and the curve needs to steepen,'' said Richard Schlanger, who manages about $4 billion of fixed-income assets, including Treasuries, at Pioneer Asset Management in Boston.
The yield on the benchmark 10-year note rose 5 basis points, or 0.05 percentage point, to 5.15 percent at 4:32 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 1/2 percent note due May 2017 fell 11/32, or $3.44 per $1,000 face amount, to 95. Yields move inversely to prices.
The following is from BCA Research, which posts a daily quick hit idea.
We have previously pointed out that portfolio managers in aggregate were bullish bonds, while underlying support for the bond market was eroding. We concluded that a capitulation phase would likely be needed before the sell off was over. Clearly, Thursday's breakout in the 10-year Treasury yield (which pierced a 20-year downward resistance line) forced a capitulation. Yet the fallout in the equity markets has been contained so far. Without the canary for the economy complaining, yields surged again overnight, briefly testing 5.25% Friday morning. Our instincts suggest that we are now in a classic blowoff phase and a buying opportunity may soon emerge. Still, until there is more evidence of pain from risky assets (equities and commodities), long bond positions face near-term risk.
Here is the accompanying chart:
For almost 10 years, yields have been decreasing. Now they may be increasing because of inflationary concerns and pressures.
This is why keeping an eye on bond yields right now is crucial.
