BLBG: Treasuries Rise, Yields Fall to Record Lows, as Stocks Slump
By Wes Goodman
Dec. 2 (Bloomberg) -- Treasuries gained, with yields at record lows, as Asian stocks extended a global rout on mounting signs of a worldwide recession.
Spreads on Asia’s high-yield, high-risk dollar-denominated company debt widened to the most ever relative to rates on Treasuries, according to Merrill Lynch & Co. indexes. In Japan, government bonds rose for a second day after Federal Reserve Chairman Ben S. Bernanke said yesterday the U.S. central bank may purchase Treasuries, spurring speculation the Bank of Japan will do the same.
“This rally is beyond my expectations,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s largest bank. “The U.S. economy has collapsed.” Treasuries may fall in December because rates are becoming unattractive, Yamamoto said.
The yield on the three-year note declined five basis points to 1.08 percent as of 1:30 p.m. in Tokyo, according to BGCantor Market Data. The price of the 1.75 percent security maturing in November 2011 rose 4/32, or $1.25 per $1,000 face amount, to 101 30/32.
The yield is the lowest since 1962, based on weekly records of the figure that the Fed started that year.
The MSCI index of stocks in Asia and the Pacific fell 3.8 percent, after the Standard & Poor’s 500 Index plunged 8.9 percent, the most since Oct. 15.
Bank of Japan
The Bank of Japan will hold an emergency board meeting today to discuss expanding the range of corporate debt it accepts from lenders to encourage banks to increase funding for businesses.
The yield on Japan’s 1.5 percent bond due in September 2018 fell 2.5 basis points to 1.365 percent, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker, approaching a two-month low.
Spreads on Asia’s below-investment-grade bonds widened one basis point to 26.77 percentage points above similar-maturity U.S. Treasuries, according to Merrill’s Asian Dollar Non-Financials index.
Futures on the Chicago Board of Trade show 74 percent odds the Fed will lower its 1 percent target rate for overnight bank lending by a half-percentage point on Dec. 16 and a 26 percent chance of a three-quarter-percentage point cut.
Yields on two-, 10- and 30-year debt dropped to levels not seen since the U.S. began regular sales of the securities.
Automakers’ Loans
Investors have rushed into Treasuries, pushing returns in November to 5.4 percent, the biggest monthly gain since 1981, Merrill Lynch index data show. U.S. government debt has rallied 11.4 percent this year, the most since 11.6 percent in 2002.
Traders also sought long-term securities because of speculation the U.S. plans to buy as much as $600 billion of mortgage debt, fueling demand for Treasuries as a replacement for bonds backed by home loans that may be repaid early.
President-elect Barack Obama, who assumes power in January, will take control of an economy that entered a recession a year ago, based on a statement yesterday from the panel that dates American business cycles.
General Motors Corp., Ford Motor Co. and Chrysler LLC union leaders are scheduled to meet tomorrow in an emergency session in Detroit as the companies seek concessions from the United Auto Workers to win $25 billion in government loans.
Toyota Motor Corp., the world’s second-largest automaker, cut winter bonuses for the first time for about 8,700 managers in Japan as slowing global economic growth cripples car demand.
In Australia, the central bank lowered its benchmark interest rate by one percentage point to a six-year low of 4.25 percent, and said economic conditions in major countries are “weak.”
Money Markets
Treasury yields are dropping enough to raise speculation investors will look elsewhere to make new purchases.
“Day by day, rates are falling,” said Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-largest brokerage, which has the equivalent of $103.9 billion in assets. “Treasuries are becoming less attractive. Corporate bonds and asset-backed securities will draw investors.”
Komiya said he’s not ready to start selling Treasuries during the market rally.
Money-market rates climbed, indicating banks are less willing to lend.
The Tokyo three-month interbank offered rate, or Tibor, rose to a 10-year high of 0.89 percent.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 2.18 percentage points from 2008’s low of 76 basis points set in May. The spread was at 4.64 percentage points on Oct. 10, the most since Bloomberg began compiling the data in 1984.
Investors seeking the safety of U.S. debt kept the three- month bill yield at 0.04 percent.
“Cash and Treasuries are king,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., who oversees $90 billion in fixed-income assets.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
