BLBG:Treasuries Rise a Fourth Day on Speculation Stock Rout to Support Auction
Treasuries gained for a fourth day on speculation a global rout in equities and Europe’s debt crisis will increase bids at a $12 billion auction of five-year Treasury Inflation Protected Securities today.
Benchmark 10-year yields were within a quarter percentage point of the record low and some TIPS rates were negative as Europe’s fiscal woes pushed the euro below $1.3 yesterday for the first time since January. BlackRock Inc., the world’s largest money manager, Morgan Stanley and Fidelity Investments all recommended TIPS in the past week.
“Yields are very low, but they can go lower,” said Zeal Yin, a money manager at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $50.9 billion and is Taiwan’s second-largest life insurer. “The euro problem will go on. The U.S. is the safe haven.”
Thirty-year rates declined four basis points to 2.87 percent as of 7:24 a.m. in London, according to Bloomberg Bond Trader prices. They slid 20 basis points, or 0.2 percentage point, in the past three days. The 3.125 percent security due in November 2041 rose 23/32, or $7.19 per $1,000 face amount, to 105 1/8.
Ten-year yields fell two basis points to 1.88 percent, versus the record low of 1.67 percent set Sept. 23.
The MSCI All Country World Index of stocks slid for a fourth day, leaving it down 3.8 percent over the period.
Japan’s 10-year yield dropped 1 1/2 basis points 0.98 percent after touching a three-week low of 0.975 percent.
Negative Yields
Treasuries extended gains as preliminary results from a survey indicated that China’s manufacturing may decrease for a second month in December. The purchasing managers’ index was 49, according to preliminary data from HSBC Holdings Plc and Markit Economics. That compares with 47.7 for November. The dividing line between contraction and expansion is 50.
The difference between two- and 30-year yields narrowed to 2.63 percentage points, the least since Nov. 25.
Treasury 30-year yields don’t offer much value, said Martin Hegarty, co-head of global inflation-linked portfolios at New York-based BlackRock Inc., which oversees $3.35 trillion.
Investors should replace these bonds in their portfolios with 30-year TIPS , Hegarty said in an interview Dec. 13 on Bloomberg Television’s “Street Smart” with Adam Johnson.
Five-year TIPS rates of negative 89 basis points aren’t a deterrent to James Caron, the head of U.S. interest rate strategy at Morgan Stanley in New York, one of the 21 primary dealers that underwrite U.S. debt.
‘Negative Real Yields’
“There’s really no limit on how negative real yields can go,” he told Lisa Murphy on Street Smart. “We’re really bullish on tips right now going into 2012.”
TIPS “offer reasonably priced protection from inflation compared with nominal Treasuries,” Franco Castagliuolo, a bond portfolio manager at Fidelity wrote Dec. 9 in a report on the company’s website. The Boston-based company oversees $1.53 trillion in investments.
Government reports today on producer prices and tomorrow on consumer costs will show both rose in November after declining in the previous month, Bloomberg surveys of economists show.
The between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 1.91 percentage points. The 10-year average is 2.13 percentage points.
Fed Purchases
The Federal Reserve is scheduled to buy as much as $5 billion of Treasuries due from 2017 to 2019 today as part of its plan to swap holdings of shorter maturities for longer ones to keep borrowing costs down.
The Treasuries rally is about to end as the U.S. economy expands, based on Bloomberg surveys of economists.
The 10-year yield will advance to 2.19 percent by March 31, according to responses from banks and securities companies, with the most recent forecasts given the heaviest weightings.
“There’s no recession,” said Hideo Shimomura, who helps oversee the equivalent of $76.8 billion as chief fund investor at Mitsubishi UFJ Asset Management Co. in Tokyo, a unit of Japan’s biggest publicly traded bank. “Yields are going to rise in the next quarter.”
Growth Indicators
Industrial production increased 0.1 percent in November after rising 0.7 percent in October, according to the median forecast of economists surveyed by Bloomberg News. Manufacturing in the New York and Philadelphia regions picked up in December, regional reports may also show, separate surveys signal.
Demand for U.S. assets from investors outside the nation probably declined in October, based on the Bloomberg surveys before the Treasury Department reports the figure today.
Net purchases of long-term notes, bonds and equities totaled $62.5 billion, versus $68.6 billion in September, according to the responses.
Conventional Treasuries have returned 9.7 percent this year, the most since 2008, according to Bank of America Merrill Lynch indexes. Bid-to-cover ratios, which gauge demand by comparing total bids with the amount of securities offered, increased at sales of three-, 10- and 30-year Treasuries earlier this week.
TIPS, which offer both the safety of U.S. debt and protection against future inflation, handed investors a 14 percent gain, the most since 2002, the figures show.
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
