Economic Optimism Fuels Lower Treasury Note Prices

Ten-year treasury notes continue to decline in value ahead of reports which are expected to show consumer prices and factory output rose last month. Demand for the safe assets is tied closely to other economic indicators. U.S. industrial production is expected to rebound in February. According to analysts, output from factories, mines and utilities climbed 0.4 percent last month. Consumer sentiment is expected to rise to 76 from 75.3 in February in the Thomson Reuters/University of Michigan index , according to an average of 70 economist estimates. “For the first time in years I think I can safely say that there is more good news than bad news in the financial press today,” wrote RBS strategists William O'Donnell, John Briggs and Gabriel Mann in a note. The yield on a 10-year not has risen 43 basis points, or 0.43 percentage points, this year. The 10-year yield was up to 2.34 percent by about 7:30 this morning according to Bloomberg Bond Trader prices. The yield is still lower than last year's 3.77 percent high and the 10 year average of 3.87 percent. The yield on 2% notes due February 2022 rose 31 basis points, or 0.31 percentage points, this week, the most since early July last year. Prices dropped about $5.60 per $1,000 in face value. Thirty-year yields rose six basis points this morning to 3.48 percent. The notes reached a 3.49 percent yield yesterday, the highest since Sept. 2. Yields may continue to climb 10 to 15 basis points in the next two weeks, Kornelius Purps, a fixed-income strategist at UniCredit SpA (UCG) in Munich, told Bloomberg. “If we see industrial production above expectations then that could add to the positive market sentiment” and be negative for Treasuries, he said. “A combination of a series of quite good economic data and the Fed's statement has caused Treasury yields to break out of their range and increase this week.” Other good news has come out this week as a German survey showed investor confidence in the country reached a 21 month high and reports came out of increasing and more stable home prices in parts of the US and the UK. US unemployment is also creating more optimism as rates stay at 8.3%, a three-year low. Seasonally-adjusted new claims for unemployment also declined, the Labor Department said yesterday. There was a decreased of 14,000 claims from the week before, though 351,000 still filed for the assistance. Even as yields rise and prices fall for treasuries, the market could still heat up. “The Fed is still doing the Twist, Bernanke has QE3 in the back burner, and Europe could still flare up,” Didi Weinblatt, VP of mutual funds and a fixed-income expert for USAA, told Forbes. Any of those could prompt another investor run into treasuries.