BLBG: Treasury Yields Near 3-Week Low as Stocks Fall on Goldman Probe
By Theresa Barraclough
April 19 (Bloomberg) -- Treasury 10-year yields were near the lowest level in more than three weeks as Asian stocks declined after the U.S. Securities and Exchange Commission sued Goldman Sachs Group Inc. for fraud.
Notes rose earlier today after U.K. and German officials said authorities in the countries may probe Goldman’s activities in light of the SEC suit, and before an International Monetary Fund mission visits Athens to discuss aid for Greece. The difference between two- and 10-year yields was near the least in three weeks on speculation inflation will remain subdued.
“Stocks will fall, which will create a buying bid for Treasuries,” said Akira Takei, a manager of international bond investments in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest bank. “Considering we aren’t going to see a rate hike until 2012, yields are too high.”
The yield on the benchmark 10-year note fell one basis point, or 0.01 percentage point, to 3.76 percent as of 1:07 p.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security due February 2020 rose 2/32, or 63 cents per $1,000 face amount, to 98 30/32.
The yield, which earlier dropped to 3.74 percent, the lowest since March 24, may decline to 3.25 percent by the end of June, according to Takei.
The MSCI Asia Pacific Index of shares slid 2 percent after U.S. stocks dropped on April 16 by the most since February. Goldman Sachs slid as much as 16 percent at the end of last week after the firm was sued by regulators for fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression.
Goldman Probes
Prime Minister Gordon Brown yesterday called for the Financial Services Authority to start an investigation into Goldman Sachs, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.
The European Union is already probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit.
Ignis Asset Management added to a bet that German bunds would lag behind U.S. debt after the $61 billion rescue for Greece was announced April 11.
Yields on 10-year bunds rose as much as 0.24 percentage point relative to similar-maturity Treasuries since April 5 and BlackRock Inc., the world’s largest money manager, said it no longer pays to own the debt amid Europe’s fiscal crisis.
‘Rally is Over’
“The bund rally is over,” said Stuart Thomson, a money manager at Ignis in Glasgow, Scotland, who helps oversee more than $100 billion. “Greece ultimately has to default and bund yields will have to rise as Germany funds the Greek rescue over the next two to three years.”
After returning three times more than Treasuries since Sept. 15, 2008, as investors favored the debt of nations with the lowest budget deficits, sentiment toward bunds is turning on speculation the aid package may be the first step in a unified fiscal policy. Europe’s “game of fiscal chicken” promises to make governments less determined to cut deficits, according to BNP Paribas SA, France’s biggest bank.
Signs inflation is contained will encourage investors to buy longer-maturity bonds, flattening the so-called yield curve, according to Mizuho Asset Management. The U.S. yield curve, which was at 2.81 percentage points today, is likely to narrow to 2.22 percentage points by year-end, a weighted Bloomberg survey of economists showed.
‘Below Potential’
Janet Yellen, president of the Federal Reserve Bank of San Francisco, said last week she supports the central bank’s pledge to keep borrowing costs low for an “extended period” because “the economy is operating well below its potential, inflation is subdued, and such conditions are likely to continue.”
Wholesale prices excluding food and energy costs rose 0.1 percent in March, the same as the prior month, according to a Bloomberg survey before the Labor Department report on April 22. The cost of living in the U.S. rose 0.1 percent in March, while prices excluding food and energy were unchanged, the Labor Department said April 14.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, fell to 2.32 percentage points today from this year’s high of 2.49 percentage points set in January.
Investors remained the least bearish this year on U.S. government debt, according to a survey of money managers by Ried Thunberg ICAP Inc.
The company’s index measuring the outlook for Treasuries through the end of June was 46, the matching the highest this year. A figure less than 50 shows investors expect prices to decline. The company, based in Jersey City, New Jersey, interviewed 21 fund managers controlling $1.32 trillion of assets.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net
