BLBG: Treasuries Fall, Eroding Weekly Gain, as Stocks Recoup Losses
By Wes Goodman and Anchalee Worrachate
Aug. 27 (Bloomberg) -- Treasuries fell, eroding a weekly advance, as a rebound in Asian shares reduced demand for U.S. bond yields at a 19-month low.
Longer-maturity debt led the decline after the Nikkei 225 Stock Average climbed back from an initial loss, raising speculation a global stock rout this month has run its course. Benchmark 10-year notes still headed for a fifth weekly gain, the longest rally since February, after economists cut their forecasts for economic growth.
“The speed of the rally will slow,” said Hiromasa Nakamura, who helps oversee the equivalent of $22.5 billion as a senior investor in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest banking group. “The news on the economy is priced in. We sold Treasuries a bit to lock in our profit.”
The yield on the benchmark 10-year note rose three basis points to 2.51 percent as of 7:52 a.m. in London, according to BGCantor Market Data. The 2.625 percent security maturing in August 2020 fell 8/32, or $2.50 per $1,000 face amount, to 100 31/32. The yield slid to 2.42 percent on Aug. 25, the lowest level since January 2009.
Japan’s Nikkei 225 advanced 1 percent after falling by as much as 1.1 percent. The MSCI Asia Pacific Index of shares rose 0.3 percent. European stock futures declined.
The 10-year yield will rise to 3.13 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. None of the 71 companies predict a decline from today’s level.
Growth Slows
U.S. gross domestic product grew at an annual rate of 1.4 percent in the second quarter, versus the 2.4 percent pace the government estimated last month, according to a Bloomberg survey of economists before the Commerce Department reports its revised figure today.
Sovereign debt rallied around the world this month as economists trimmed their growth forecasts and stocks tumbled.
Treasuries have returned 1.9 percent in August, and an index of government bonds gained 1.8 percent, according to Bank of America Merrill Lynch data. MSCI’s World Index of shares handed investors a 4.1 percent loss, after accounting for reinvested dividends.
‘Alarming’ Data
Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co., said the economic data are “alarming,” in an opinion piece in the Washington Post. Pimco, based in Newport Beach, California, runs the world’s biggest bond fund.
Unemployment is high, consumer credit is shrinking and small companies are having trouble obtaining lines of credit, wrote El-Erian, who is also Pimco’s co-chief investment officer.
“Throughout the summer, data signals have become more alarming,” he wrote. “Current policy approaches here and abroad are unlikely to deliver a durable and robust U.S. recovery.”
Federal Reserve Chairman Ben S. Bernanke is scheduled to speak today in Jackson Hole, Wyoming, raising speculation he will say the central bank is considering increasing its debt purchases to help keep borrowing costs low.
Fed policy makers said at their Aug. 10 meeting they would reinvest principal payments on mortgage assets the central bank holds into long-term Treasuries after judging “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
Forecasts Cut
Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, cut his estimate for growth this quarter to a 2 percent annual pace. As recently as two weeks ago, he projected 4.6 percent. Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, predicts a 2.3 percent growth rate, down from a June forecast of 4.1 percent.
“Treasuries are the only place to go,” said Kazuaki Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, Canada’s fifth-largest lender. “What’s the alternative? Nobody believes the economy is OK.”
The 14-day relative-strength index for 30-year yields slid to 28. Readings below 30 suggest yields will increase, while figures above 70 indicate the opposite.
To contact the reporter on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
