Dec. 5 (Bloomberg) -- Treasury 10-year notes declined as a technical indicator showed a seven-day rally that pushed yields to record lows was overdone.
The debt’s 14-day relative-strength index fell to 24.6 yesterday, below the level of 30 that signals yields are poised to rise. The difference in yields between 10-year Treasury Inflation Protected Securities and regular notes widened to the most in more than two weeks on speculation efforts to unfreeze credit markets will cause consumer prices to increase.
“Treasuries have been overbought, with yields reaching expensive levels,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s largest bank. “While we may see some unwinding of long positions, this is likely to be short-lived.” A long position is a bet on an asset price gaining.
The yield on the 10-year note climbed three basis points to 2.58 percent as of 6:50 a.m. in London, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 declined 7/32, or $2.19 per $1,000 face amount, to 110 7/32. The yield reached 2.53 percent yesterday, the lowest level since 1954.
Two-year yields rose one basis point to 0.83 percent, after dropping to 0.805 percent yesterday.
The MSCI Asia-Pacific Index of regional shares gained 0.1 percent, trimming a weekly loss to 3.8 percent. Standard & Poor’s 500 stock futures were little changed.
Weekly Rally
Treasuries headed for a fifth weekly gain, the longest stretch for 10-year notes since January, before a government report today that economists predict will show U.S. employers cut the most jobs in November since 1982 as the recession deepened.
Yields reached record lows yesterday after a Labor Department report showed the number of Americans on unemployment benefit rolls rose to 4.09 million in the week ended Nov. 22, also the most since 1982.
Investors fleeing to the safety of debt have driven returns on Treasuries to 12.3 percent this year while the S&P 500 stock index has lost 42 percent. Prudential Financial Inc., the second- biggest U.S. life insurer, said yesterday it plans to sell its stake in Wachovia Securities and seek aid from the U.S. government as it braces for a fourth-quarter loss, adding to signs the credit crisis may be prolonged.
Three-month bill rates were little changed at 0.01 percent.
‘To the Downside’
“The risks for the data are to the downside,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The U.S. is in recession, and my expectation is that it’ll be in recession for the first half of next year. Go long Treasuries.”
The 10-year bond yield may fall to 2.45 percent and the 30- year yield may drop to 2.90 percent by year-end, Carr said.
Thirty-year yields rose 4 basis points to 3.08 percent.
Non-farm payrolls in the U.S. shrank by 333,000 in November, the 11th month that companies have cut jobs, according to the median estimate of 73 economists in a Bloomberg News survey. The Labor Department will issue the report at 8:30 a.m. in Washington.
The Federal Reserve said yesterday it plans to buy Fannie Mae, Freddie Mac and Federal Home Loan Bank debt maturing over the next two years in its first purchases under a new program aimed at reducing mortgage costs.
“The Fed is going to be buying Treasuries in the long end and bringing down rates along the entire curve,” said Marc Fovinci, who helps invest $2.8 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “We have a credit crunch and nobody knows where the losses are buried, how big they are and who might still go under. We’re going to have demand for Treasuries.”
Yield Spreads
The difference in yield between two- and 10-year notes was 1.75 percentage points compared with 1.94 percentage points a week ago and narrowing from the year’s high of 2.62 points on Nov. 13.
Traders increased bets the Fed will lower borrowing costs this month.
Futures on the Chicago Board of Trade yesterday showed 64 percent odds that policy makers will lower the 1 percent target overnight lending rate between banks by 75 basis points on Dec. 16, rising from 36 percent a week earlier. The rest of the bets are for a half-a-percentage-point cut.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was unchanged at 2.18 percentage points. The spread reached 4.64 percentage points on Oct. 10, the most since Bloomberg began tracking the figure in 1984.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net
