Bonds rise, pushing yields lower, despite stronger-than-expected gain in pending home sales

Bond yields dip despite rise in pending home sales

NEW YORK — Yields on long-term Treasurys, a key barometer for interest rates on mortgages and other loans, pulled back Tuesday despite a surprisingly large increase in pending home sales.

Investors were focusing instead on the Federal Reserve’s planned bond purchases later this week. The Fed has been buying government debt to offset the massive supply of government debt coming to the market.

Last week the yield on the 10-year bond jumped to a six-month high of 3.75 percent, stoking worries about homeowners’ ability to refinance and borrowing costs for potential homebuyers. Monday also brought a selloff.

But investors bought Treasurys again on Tuesday, even though the National Association of Realtors said sales contracts for previously-occupied homes rose 6.7 percent in April. That was the largest monthly rise in nearly eight years. An improving outlook for the economy can lead investors to sell Treasurys, pushing their yields higher, if the market expects economic activity and possibly inflation to pick up.

The 10-year yield has yet to return to last week’s levels. On Tuesday, the yield on the 10-year Treasury note slipped to 3.62 percent from 3.68 percent late Monday, as its price rose 13/32 to 95 27/32.

The question facing the Fed now is whether it should buy more government debt this year than it originally said it would to keep yields from climbing. A key gauge of inflation in the Treasury market — the difference between the yield on the 10-year note and the yield on the 10-year inflation-protection note — briefly surpassed 2 percentage points on Tuesday, indicating annual inflation of more than 2 percent.

Inflation worries have been driving the dollar and Treasurys lower.

In other Treasury trading Tuesday, the yield on the 30-year bond fell to 4.49 percent from 4.53 percent as its price rose 25/32 to 96 4/32.

The yield on the two-year note was flat at 0.96 percent. Its price was unchanged at 99 26/32.

The yield on the three-month Treasury bill rose to 0.13 percent from 0.12 percent. Its discount rate was 0.14 percent.

The cost of borrowing between banks held steady at a record low. Falling borrowing rates for banks are a sign of growing confidence in the financial system. The British Bankers’ Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — was flat at 0.65 percent.