BLBG: Treasuries Rise for First Time in Five Days as Stocks Decline
Treasury notes rose for the first time in five days as stocks fell on concern the global slowdown will worsen, spurring demand for government debt.
Yields near a six-week high lured investors after Microsoft Corp., the world’s largest software maker, said yesterday it will cut as many as 5,000 jobs in the first companywide firings in its 34-year history. The cost of protecting bonds in Asia and the Pacific from default rose as investors shunned higher- yielding assets.
“Risk aversion is pushing yields lower,” said Peter Jolly, head of market research at National Australia Bank Ltd.’s investment-banking unit in Sydney. “Treasuries are probably pretty good value.”
Ten-year yields, used to set corporate borrowing costs and mortgage rates, fell three basis points to 2.56 percent as of 3:21 p.m. in Tokyo, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 rose 9/32, or $2.81 per $1,000 face amount, to 110 7/32. A basis point is 0.01 percentage point.
Ten-year rates will decline to 2 percent by March 31, Jolly said, surpassing the record low of 2.04 percent set Dec. 18.
The MSCI Asia Pacific Index of regional shares fell 2.5 percent, its third loss in four days.
Markit’s iTraxx Japan index of credit-default swaps rose eight basis points to 3.15 percentage points, BNP Paribas SA prices show. 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.
Demand for Safety
Demand for the relative safety of sovereign debt pushed Treasuries up 14 percent last year, the most since 1995, according to Merrill Lynch & Co.’s U.S. Treasury Master index.
Government securities handed investors a 1.8 percent loss so far in January on concern the cost of President Barack Obama’s plans to bail out banks and fuel the economy will lead to quicker inflation. Ten-year yields increased 26 basis points this week, the most since October.
Goldman Sachs Group Inc., one of 17 primary dealers that bid in Treasury auctions, said U.S. borrowing may climb to a record $2.5 trillion fiscal year that started Oct. 1. The forecast compares with $892 billion in notes and bonds sold during the prior 12 months.
“People are demanding a larger premium to hold U.S. bonds,” said Satoshi Okumoto, general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has $61.4 billion in assets. “Obama announced a plan but the final result may be different. We still don’t know how much they have to borrow. We’re a bit bearish.”
Fukoku Mutual trimmed its U.S. bond holdings in December, Okumoto said.
TIPS
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, widened to a nine-week high of 67 basis points.
Yields indicate government efforts to spur growth are increasing demand for credit.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 1.06 percentage points from 2008’s high of 4.64 percentage points in October.
The London interbank offered rate, or Libor, for three- month dollar loans was 1.16 percent yesterday, down from 4.82 percent in October.
‘Manipulating’
Government debt fell yesterday after Treasury Secretary- nominee Timothy Geithner said China is “manipulating” its currency, raising speculation overseas demand will wane.
“There’s concern on the China front,” Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley’s individual-investor clients, said yesterday. “Do they fire back and stop buying Treasuries, especially given the huge amount of supply we’re going to need to underwrite over the next few years?”
China, the largest foreign owner of Treasuries, increased its stake to a record $681.9 billion in November.
The so-called real yield, or what investors get from 10- year notes after inflation, was at a 16-month high of 2.5 percent. Consumer prices rose 0.1 percent for all of 2008, after increasing 4.1 percent the previous year, Labor Department figures show.
