BLBG: Treasuries Advance as Retail Sales Unexpectedly Fell in May
By Susanne Walker and Cordell Eddings
June 11 (Bloomberg) -- Treasuries rose, pushing the 10-year note’s yield down the most in a week, as U.S. retail sales unexpectedly dropped last month, encouraging demand for the relative safety of U.S. government debt.
Government debt climbed earlier as comments from the billionaire George Soros damped optimism the global economic recovery will withstand Europe’s sovereign-debt crisis. U.S. notes and bonds drew higher-than-forecast demand at this week’s auctions totaling $70 billion.
“There is a solid backdrop for Treasuries,” said Larry Milstein, managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed- income broker and dealer for institutional investors. “Economic growth is not as strong as most had anticipated.”
The yield on the 10-year note dropped nine basis points, or 0.09 percentage point, to 3.24 percent at 4:02 p.m. in New York, according to BGCantor Market Data. The 3.5 percent security maturing in May 2020 increased 24/32, or $7.50 per $1,000 face amount, to 102 6/32.
Sales at U.S. retailers decreased 1.2 percent last month, the Commerce Department reported today, following a revised 0.6 percent gain in April. The median forecast of 76 economists in a Bloomberg News survey was for a gain of 0.2 percent.
“This adds momentum to the buying,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of the 18 primary dealers obligated to participate in Treasury auctions. “It was a disappointing number.”
Second Act
Soros said yesterday at a conference in Vienna that the fiscal crisis that prompted Europe’s governments to curb budget deficits may push the global economy back into a recession.
“The collapse of the financial system as we know it is real, and the crisis is far from over,” he said. “We have just entered Act II of the drama.”
Treasuries and bunds have rallied as European debt turmoil originating in Greece spread to other nations. The correlation between yields on 10-year U.S. and German government debt was 0.69 from April 9 through today, compared with 0.45 in the previous two months. A reading of 1 would mean the yields move in lockstep.
Treasuries rallied on June 4, when a Labor Department report showed U.S. employers added fewer jobs last month than economists expected.
Inflation View
Relative to inflation, the 10-year note does not “look all that expensive,” said Anthony Crescenzi, market strategist and portfolio manager at Pacific Investment Management Co. in Newport Beach, California, which manages the world’s largest bond fund. “Those in the storm might be willing to buy the insurance given what the risks are right now,” he said in an interview with Bloomberg Television.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, dropped today to 1.97 percentage points, compared with the five-year average of 2.14 percentage points.
U.S. government debt briefly pared gains as the Thomson Reuters/University of Michigan preliminary consumer sentiment index for June increased to 75.5 from 73.6 at the end of last month. The median forecast of 65 economists in a Bloomberg News survey was for an advance to 74.5.
Weekly Decline
Federal Reserve Bank of Philadelphia President Charles Plosser said today in Altoona, Pennsylvania, that the U.S. economic recovery is on a sustainable path. “Although the recovery so far has been quite mild given the recession’s severity, I believe that it is becoming more broad-based,” Plosser said.
Treasuries had a weekly loss, with 10-year note yields rising 3 basis points. U.S. debt tumbled yesterday after Australia reported a third month of job gains, New Zealand raised interest rates and China said exports jumped 49 percent in May from a year earlier.
An increase in yields yesterday before a $13 billion 30-year bond auction resulted in the highest demand this year. At the sale, the bond drew a yield of 4.182 percent, the lowest since October, when the yield was 4.009 percent.
The $21 billion auction of 10-year notes on June 9 drew a yield of 3.242 percent, compared with the average forecast of 3.252 percent in a Bloomberg News survey of primary dealers. The $36 billion sale of three-year notes a day earlier attracted a yield of 1.220 percent, the lowest since January 2009.
“We don’t currently have a problem attracting investors to our debt,” Kevin Giddis, head of fixed-income sales, trading and research at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net
