U.S. 10-Year Notes Fall as Fed Cuts Benchmark Rate Half-Point
By Deborah Finestone and Daniel Kruger
Jan. 30 (Bloomberg) -- Treasuries maturing in 10 years or more fell a third day as the Federal Reserve cut its benchmark interest rate by half a percentage point, fueling speculation lower borrowing costs will spur economic growth and inflation.
Traders have driven 10-year yields up from the lowest since 2003 this month as increasing demand for durable goods and signs of accelerating job growth eased concern that a housing slump will drag the economy into a recession. Two-year notes were little changed as the Fed cited ``downside risks'' to the economy, fueling bets officials will cut rates again.
``The longer end of the curve is always going to be more concerned about inflation given the cuts in rates,'' said Michael Maurer, co-portfolio manager in Tulsa, Oklahoma, at Axia Investment Management, which oversees $1.3 billion in fixed- income. ``The short end of the curve is going to rally if they think there are additional rate cuts to come.''
The yield on the benchmark 10-year note rose 6 basis points, or 0.06 percentage point, to 3.73 percent as of 3 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 1/4 percent security due in November 2017 fell about 1/2, or $5 per $1,000 face amount, to 104 6/32.
Ten-year note yields touched 3.285 percent on Jan. 23, the lowest since June 2003, as a tumble in stocks drove investors to the relative safety of Treasuries.
Benchmark two-year yields fell 1 basis point today to 2.27 percent. The Standard & Poor's 500 index gained 1.5 percent.
Today's reduction was the Fed's fifth since September, and pushes the Fed's target rate for overnight loans between banks to 3 percent, the lowest since June 2005. The Fed has slashed rates 2.25 percentage points since Sept. 18, including a 0.75 percentage point intermeeting reduction on Jan. 22.
Job Growth
``Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity,'' the Federal Open Market Committee said in a statement after meeting today in Washington. ``However, downside risks to growth remain.''
The Fed's decision matched the median forecast of 89 economists surveyed by Bloomberg News. Twenty-one in Bloomberg's survey forecast a quarter-point cut, one called for 0.75 percentage point and the rest saw no change.
``The overall tone does suggest a continued bias to cut rates,'' said William O'Donnell, a U.S. government bond strategist at UBS Securities in Stamford, Connecticut, one of the 20 primary dealer firms that trade with the Fed. The Fed ``is willing to do anything to get this economy going again.''
March Bets
Traders see a 62 percent chance of a 25 basis-point rate cut to 2.75 percent at the Fed's next scheduled meeting on March 18, futures on the Chicago Board of Trade show. There is about a 34 percent likelihood of a half-point cut, and a 4 percent chance of 75 basis points.
Treasuries' decline began earlier as a report indicated job growth accelerated this month. Companies in the U.S. added 130,000 jobs this month, compared with 37,000 in December, ADP Employer Services said today. The median forecast in a Bloomberg survey was for a gain of 40,000.
Treasuries also fell yesterday after the government said orders for U.S. durable goods rose 5.2 percent in December, the most since July. The report allayed concern that the housing recession will drag down the overall economy. The S&P/Case- Shiller home-price index for 20 U.S. metropolitan areas fell 7.7 percent in the 12 months to November, the most since the index was started in 2000, the group said yesterday.
U.S. gross domestic product grew at a 0.6 percent annual rate last quarter, slowing from a 4.9 percent clip the previous three months, the government said today. The median forecast in a survey by Bloomberg News was for a 1.2 percent growth rate.
department. This also will help our credibility in the international markets.
:worried:
