BLBG: U.S. 10-Year Yield Is at Two-Week Low as Asian Stocks Tumble
By Wes Goodman
Oct. 23 (Bloomberg) -- Treasuries were little changed, with 10-year yields at the lowest in two weeks, as a spreading economic slump sent stocks tumbling around the world.
The cost of protecting bonds in Asia and the Pacific from default rose to a record and investors shunned emerging-market assets. Futures contracts show an 80 percent chance the Federal Reserve will cut its target for overnight bank loans by half a percentage point to spur the economy, doubling from a week ago. Former Fed Chairman Alan Greenspan said job losses will increase.
``Funds are selling any kind of risky asset,'' said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., with $58.7 billion in assets. ``They will have to cut interest rates. I am quite bullish on government bonds.''
The yield on the 10-year note was 3.60 percent as of 6:27 a.m. in London, according to BGCantor Market Data. The price of the 4 percent security maturing in August 2018 was unchanged at 103 9/32. A basis point is 0.01 percentage point.
Two-year yields rose 3 basis points to 1.54 percent. They will fall to 1 percent by year-end, Okumoto said.
Notes erased an early loss as the MSCI Asia Pacific Index of regional shares fell 3.3 percent, bringing its two-day loss to 8.7 percent. The dollar rose to an almost two-year high against the euro on speculation European central banks will cut borrowing costs to revive economic growth.
``Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,'' Greenspan said in speech released by his office before he is scheduled to deliver it today.
U.S. Jobless
Initial jobless claims in the U.S. rose to 468,000 for the seven days ended Oct. 19 from 461,000 the week before, based on the median forecast in a Bloomberg News survey of economists before the Labor Department issues the report today.
The number of people continuing to collect jobless benefits climbed to 3.715 million in the week ended Oct. 12, the most since June 2003, the survey shows.
The Markit iTraxx Australia index of credit-default swaps rose 50 basis points to 3.50 percentage points. Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements. Prices rise as perceptions of creditworthiness decline.
Auction Announcements
Shorter maturities lagged behind 10-year notes because of speculation the government will announce record two- and five- year auctions for next week to help fund the $700 billion financial system bailout.
The U.S. has ``unprecedented financing needs,'' Wrightson ICAP LLC, an economic advisory firm, said in a report.
The Treasury will announce today that it plans to sell $38 billion of two-year notes on Oct. 28 and $27 billion of five-year notes on Oct. 30, according to Wrightson based in Jersey City, New Jersey. It will also auction $6 billion of five-year Treasury Inflation Protected Securities on Oct. 27, declining from $8 billion at the prior sale, the firm said.
The U.S. government had a record $455 billion budget deficit in the fiscal year ended Sept. 30 as financial market strains slowed economic growth and spending rose. Morgan Stanley chief economist David Greenlaw predicts the shortfall may almost quadruple to about $2 trillion.
``I'm worried about supply,'' said Satoshi Arai, chief portfolio investor at Toyota Asset Management Co. in Tokyo, a unit of Japan's largest automaker with $12 billion in assets. He's keeping his holdings in line with the benchmarks he uses to gauge performance.
Emerging Markets
An index of emerging-market bonds compiled by JPMorgan Chase & Co. yielded 8.06 percentage points more than Treasuries, the most since 2002, as investors shunned all but the safest securities.
Belarus requested aid from the International Monetary Fund, joining Iceland, Pakistan, Hungary and the Ukraine in asking for assistance in weathering the financial crisis.
``There's stress in Europe, the U.S., and a lot of stress in emerging markets,'' said William O'Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, one of the 17 primary dealers that trade with the Federal Reserve. ``The bid in Treasuries is being caused by the decline in stocks and the growing concerns about a spreading global recession,'' he said yesterday.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
