Treasury five-year notes were close to the cheapest level in four years relative to two- and 10-year securities before the U.S. sells $35 billion of 2019 debt today.
The so-called butterfly spread was 24 basis points. It rose to 29 basis points March 24, the highest level since April 2010, reflecting waning demand for the middle security over the other two. Five-year notes are vulnerable because of expectations the Federal Reserve will begin a series of interest-rate increases next year as the economy improves. Fed Bank of St. Louis President James Bullard said today policy makers haven’t committed to a specific month to end bond purchases.
“More and more people are expecting that beginning in 2015, there is an increasing risk of a hike,” said Kei Katayama, a bond investor in Tokyo at Daiwa SB Investments Ltd., which has the equivalent of $48.2 billion in assets. “Selling pressure will increase in the medium-term maturities.”
Treasuries were little changed, with the benchmark 10-year yield at 2.75 percent as of 8:07 a.m. in London, according to Bloomberg Bond Trader prices. The price of the 2.75 percent note due in February 2024 was 100. The five-year notes scheduled for sale today yielded 1.76 percent in pre-auction trading.