By Dow Jones Business News, November 01, 2013, 04:06:00 PM EDT
--U.S. manufacturing index data add to worries the Fed could taper its stimulus measures in December
--Benchmark 10-year note's yield rose the most on a weekly basis in nearly two months
--Hedge funds wager bond prices will rally, survey shows
By Min Zeng
Prices of U.S. Treasury bonds fell Friday, wrapping up a bruising week as concerns grew that the Federal Reserve might
reduce bond buying earlier than many investors thought.
A third-straight selling session Friday sent the benchmark 10-year note's yield above 2.6% for the first time in two
weeks. Bond prices fall when their yields rise.
The benchmark 10-year note was 21/32 lower in price in late-afternoon trade, yielding 2.620%, according to Tradeweb.
The yield rose by 0.115 percentage point for the week, the most on a weekly basis in nearly two months.
In recent weeks, many investors had expected that the Fed wouldn't scale back its $85 billion monthly bond-buying
program until 2014 given the moderate pace of the economic growth. But two upbeat manufacturing releases this week
raised some angst that the Fed could be afforded to cut stimulus as early as December even though the bar to do that
A key gauge of U.S. manufacturing rose to the highest level since April 2011, which sent the 10-year yield to as high
as 2.629 during Friday's session. A day earlier, a gauge of business outlook in the Chicago region also climbed to the
highest level in more than two years.
Adding to the anxiety, the Fed's latest interest-rate statement on Wednesday showed the central bank didn't downgrade
its economic outlook despite the 16-day partial government shutdown last month. The central bank said the timing to pull
back its monetary stimulus hinges on economic releases going forward.
"There's still a chance the Fed could taper this year, and some trades anticipating a much later taper are being
unwound," said Anthony Cronin, a Treasury bond trader at Societe Generale. That means investors and traders booked
profits from their wagers betting on bond prices to rise.
The 10-year note's yield has fallen after briefly exceeding 3% in early September as bond buyers had bet the Fed
wouldn't be in a rush to withdraw monetary stimulus.
One group of investors are betting that bond prices will rally. According to a Citigroup survey this week, global
hedge funds are now long Treasurys, moving from wagers betting on bond prices to fall two months ago.
Japanese investors, among the largest buyers of U.S. debt, now also own more of American sovereign paper relative to
the benchmarks they track.
Scott Buchta, head of fixed-income strategy at Brean Capital LLC, expects the 10-year note's yield to trade in a range
of 2.4% and 2.75% in the near term.
"We can move sharply from here to either end of that range on economic news, but it will take something from the Fed
to move us beyond those levels in either direction," Mr. Buchta said.
For the year, those who bet on bond prices to fall still won out. Treasury bonds have handed investors a loss of 1.54%
in 2013 through Thursday, according to data from Barclays.
COUPON ISSUE PRICE CHANGE YIELD CHANGE
1/4% 2-year 99 28/32 flat 0.313% flat
5/8% 3-year 100 3/32 dn 2/32 0.590% +2.4BP
1 1/4% 5-year 99 13/32 dn 9/32 1.375% +6.0BP
2% 7-year 98 6/32 dn 16/32 2.029% +7.7BP
2 1/2% 10-year 98 31/32 dn 21/32 2.620% +7.7BP
3 5/8% 30-year 98 23/32 dn 1 4/32 3.695% +6.3BP
2-10-Yr Yield Spread: +230.7 BPS Vs +223.2 BPS
-Neelabh Chaturvedi contributed to this article.
Write to Min Zeng at email@example.com
(END) Dow Jones Newswires
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