BLBG:Treasuries Snap Gain as Reports to Show Consumer Spending Driving Growth
Treasuries snapped a gain from yesterday before reports today and tomorrow that economists said will show consumer spending is supporting the U.S. recovery.
A $35 billion sale of five-year notes today is poised to draw a record-low rate, raising speculation demand will wane among investors who predict growth in the U.S. economy. The current five-year notes yield negative 2.59 percent after accounting for consumer-price inflation, versus the average of positive 0.80 percent for the past decade.
“Yields will rise because the U.S. economy continues to recover,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “Buy-and-hold investors should wait” before purchasing Treasuries, he said.
Benchmark 10-year rates were little changed at 1.96 percent as of 1:28 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 changed hands at 100 10/32.
The five-year notes being sold today yielded 0.93 percent in pre-auction trading, versus 1.055 percent at the prior sale on Oct. 26. The record low auction yield was 1.015 percent on Sept. 28.
Japan’s 10-year rates rose 0.5 basis point to 0.96 percent.
The U.S. economy grew in the third quarter at the fastest pace in a year, based on a Bloomberg News survey before the Commerce Department issues the figures today.
Gross domestic product rose at a 2.5 percent annual rate and household purchases, the biggest part of the economy, increased at a 2.4 percent pace, based on the responses. The department estimated the figures last month, and today’s report will include any revisions.
Consumer Data
Separate data from the agency tomorrow will show consumer spending advanced 0.3 percent in October and the Fed’s preferred price measure rose, according to a separate Bloomberg survey.
The inflation gauge, which is tied to spending and excludes food and fuel costs, probably increased 1.7 percent in October from the year before, versus 1.6 percent in September. The reading would match the highest level since March 2010.
Budget Gridlock
Treasuries rallied yesterday as investors sought safety because of U.S. budget gridlock and a debt crisis in Europe.
The U.S. Congress budget committee’s failure to reach a deficit-reduction agreement puts into motion $1.2 trillion in spending cuts over 10 years. Government debt in Spain and Italy declined yesterday on concern the region’s leaders will struggle to convince investors they can pay their debts.
Traders cut bets on inflation this month, yields indicate.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt narrowed to 1.87 percentage points from 2.08 percentage points on Oct. 31. The five-year average is 2.04 percentage points.
The 10-year yield will advance to 2.19 percent by year-end and to 2.45 by the middle of 2012, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
