BLBG: Treasuries Advance as Gains in Asian, U.S. Stocks Reduce Demand for Safety
Treasuries fell for a second day as Asian stocks extended an advance in U.S. shares, curbing demand for debt with two-year yields near a record low.
Australian and Japanese bonds also slid as gains in equities eased concern that the global economy is slowing, damping investor appetite for the relative safety of government debt. A U.S. recession is unlikely, said Robert Doll, a vice chairman at BlackRock Inc., the world’s largest asset manager.
“Investors should wait to buy” Treasuries because yields are too low, said Hiroki Shimazu, an economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “Industrial production will drive the U.S. economy.”
The yield on the benchmark 10-year note rose two basis points to 2.97 percent as of 6:24 a.m. in London, according to data compiled by Bloomberg. The 3.5 percent security due in May 2020 fell 1/8, or $1.25 per $1,000 face amount, to 104 15/32.
The rate dropped to 2.88 percent on July 1, the lowest level since April 2009.
The two-year note yielded 0.60 percent, versus the record low of 0.5765 percent reached on the last two trading days.
Ten-year yields will climb to 3.5 percent by year-end, Shimazu said. Industrial production has increased for four consecutive months, according to the Federal Reserve. Shimazu says that represents the strongest part of the U.S. economy.
Ten-year rates will climb to 3.32 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.
BlackRock ‘Overweight’ U.S.
BlackRock is “overweight” U.S. stocks within its developed markets portfolio, Doll said in a Bloomberg Television interview from Princeton, New Jersey.
The Shanghai Stock Exchange Composite rallied 1.5 percent, gaining for a second day. MSCI’s Asia Pacific Index of shares rose 0.3 percent, snapping a three-day slide. The Standard & Poor’s 500 Index rose 0.6 percent yesterday.
A slowdown in U.S. economic growth means there will still be demand for Treasuries, said Yusuke Tanaka, a senior dealer in Singapore at Mitsubishi UFJ Financial Group Inc., a unit of Japan’s largest publicly traded bank.
“Yields will go down or remain at this low level,” Tanaka said. “There’s still a flight to quality in U.S. Treasuries.” He bought last week, he said.
GDP to Slow
Deutsche Bank Securities Inc. cut its forecast for second- quarter economic growth to 3 percent from 4 percent. Ten-year yields will fall to 2.75 percent by year-end, Joseph LaVorgna and Carl J. Riccadonna, economists at the bank in New York, wrote to clients yesterday. The company is one of the 18 primary dealers required to bid at government debt sales.
U.S. housing starts fell in June to the lowest level this year, according to the median estimate of 75 economists surveyed by Bloomberg News before the Commerce Department reports the figure today.
The Reserve Bank of Australia signaled that stress tests on European banks along with local inflation data will determine whether it will resume the Group of 20’s most aggressive interest-rate increases, according to minutes of its July 6 meeting released in Sydney.
European regulators are examining the strength of the region’s banks to determine if they can survive potential losses on sovereign-bond holdings. The results are due this week.
Reserve Bank Governor Glenn Stevens has raised Australia’s target for overnight bank lending to 4.5 percent from 3 percent in 2009.
Ten-year Australian yields climbed to 5.22 percent, the highest this month.
Japanese yields advanced one basis point to 1.095 percent.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
