A gauge of Treasury market volatility fell to a five-month low on speculation the Federal Reserve will maintain its debt purchases at $85 billion a month following a two-day policy meeting that ends Oct. 30.
Three-month implied volatility on 10-year interest-rate swaps was 75.22, a level not seen since May. The average over the past year is 81.41. The gauge is a measure of projected yield fluctuations over the next 90 days. It has fallen from 116.91 in September when some investors speculated the Fed would begin trimming its bond purchases that month. Treasury prices slid as investors prepared to bid on $96 billion of debt over three days starting today.
“The Fed is not tapering yet,” said Ali Jalai, a trader in Singapore at Scotiabank, a unit of Canada’s Bank of Nova Scotia (BNS) and one of the 21 primary dealers that trade directly with the central bank. “For the next two months, I think they’re going to buy. When the taper was on the table, people were selling the bond market and it was causing a lot of volatility.”
Benchmark 10-year yields rose two basis points to 2.53 percent as of 6:59 a.m. in London, according to Bloomberg Bond Trader prices. The yield is below its average over the past decade of 3.52 percent. The price of the 2.5 percent note due August 2023 declined 1/8, or $1.25 per $1,000 face amount, to 99 25/32. A basis point is 0.01 percentage point.
The Bloomberg U.S. Treasury Bond Index (BUSY) has risen 0.7 percent in October, leaving it down 1.8 percent for 2013.
Japan’s 10-year yield was little changed at 0.615 percent. The nation’s government securities have returned 0.6 percent this month and 2.5 percent for the year, based on the Bloomberg Japan Sovereign Bond Index. (BJPN)
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