“People don’t want to pay a premium for inflation protection if there is no inflation,” said Craig Collins, a rates trader at Bank of Montreal in London. “The backup that TIPS have seen will probably be enough to solicit some interest at these levels.”
The Treasury is scheduled to announce today the sizes of three note sales due next week. The U.S. will auction $35 billion of two-year debt on April 23, the same amount of five-year notes the following day and $29 billion of seven-year securities on April 25, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey.
Federal Reserve Bank of St. Louis President James Bullard said yesterday inflation has fallen too far below the central bank’s 2 percent goal, and a further decline may prompt increased asset purchases. The Fed is currently buying $85 billion of government and mortgage debt a month in a bid to spur growth and boost employment.
The central bank is scheduled to purchase as much as $3.5 billion of securities due from May 2020 to February 2023 today, according to the Fed Bank of New York’s website.
Treasury 10-year yields fell to the lowest in four months yesterday as a decline in stocks and commodities amid concern the global economy is slowing boosted demand for safety.
The Stoxx Europe 600 Index snapped its biggest four-day selloff since July today, climbing 0.4 percent. Futures on the Standard & Poor’s 500 Index gained 0.3 percent as Italian and Spanish bonds rose, curbing demand for the safest assets.
“Any pullback in Treasurys will be limited while the volatility that we have been seeing in global markets continues,” said Bank of Montreal’s Collins.