2014.06.2706:29:21UTC+00Treasury Hikes Kicks Yield to 3-Week Low

Treasuries rallied higher, pushing benchmark 10-year yields to the weakest level in three weeks, as a gauge revealed U.S. economic information is unsuccessful in topping projections.

The Citigroup Economic Surprise Index, which records whether U.S. reports are over or under market assumptions, declined to minus 23.1 yesterday, the weakest since May 1. The Federal Reserve trim its long-term projections for economic development and its goal interest rate this month and data revealed gross domestic product sagged down last quarter more than analysts estimated. A measure of volatility in the Treasury market slide down to the weakest performing mark since May 2013.

“We have been consistently positive about the outlook for U.S. Treasuries,” said Yusuke Ito, a bond manager at Mizuho Asset Management Co. in Tokyo. A lower forecast for the Fed’s long-term target rate “is a strong message that growth for the U.S. economy going forward is not going to be as strong as they expected,” he said.

The U.S. 10-year yield decrease two basis points, or 0.02 percentage point, to 2.51 percent at 1:13 p.m. in Tokyo, based to Bloomberg Bond Trader financial values. The 2.5 percent note due May 2024 jumped 5/32, or $1.56 per $1,000 face amount, to 99 7/8. The yield is at the weakest since June 2.

The benchmark yield will drop down to 2.20 percent in the next three months, Mizuho’s Ito said.

Australia, Japan

Australia’s 10-year yield relinquished as much as seven basis points to 3.53 percent, the least since June 2013. The yield has declined 13 basis points in June, set for the first three-month retreat since the period ended September 2011.

Japanese bonds also skyrocketed, with 10-year yield plummeting to 0.56 percent, equaling the weakest post since May 2013.

Fed leaders at a June 17-18 assembly trim their long-run projection for the goal rate to 3.75 percent from 4 percent and trimmed down their prediction for long-term economic development to a range of 2.1 percent to 2.3 percent, against 2.2 percent to 2.3 percent projection in March.

Policy makers stated that they expect interest rates to stay low for a “considerable time” even after they halt their bond-purchase program. The central bank left its goal for overnight lending between banks in the range of zero to 0.25 percent, where it has been since December 2008.

Economy Downgrades

Gross domestic product depreciated at a 2.9 percent yearly rate in the first quarter, the weakest reading since the similar three months in 2009, the Commerce Department stated June 25. Reports yesterday displayed consumer spending rallied less in May than economists estimated, and primary claims for unemployment benefits were greater last week than predicted.

Traders have trim to 55 percent the chance the central bank will increase its standard rate to at least 0.5 percent by July next year, down from 66 percent odds at the end of March, fed funds futures displayed yesterday.

Bank of America Merrill Lynch’s MOVE Index, which calculates financial value sways in Treasuries based on options, pulled back one basis point to 53.25 basis points yesterday.

The extra yield on Australia’s 10-year bonds over similar-maturity Treasuries plummeted to 102 basis points, the lowest since August 1 according on closing levels. The premium was as high as 153 basis points in March.

The Reserve Bank of Australia will leave its main interest rate at 2.5 percent at its next assembly on July 1, coming from all of the 29 economists polled by Bloomberg News. Bets policy makers will slash down their benchmark by year-end were 28 percent yesterday, climb from 9 percent on June 13, based from swaps information recorded by Bloomberg.

“One of the major driving factors has been pricing for the RBA,” said Zoe McHugh, an interest-rate strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Our market has outperformed over the week, so definitely the RBA has been a factor,” she stated.