BLBG:Treasuries Rise a Fourth Day on Speculation Stock Rout to Support Auction
Treasuries rose for a fourth day on speculation 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 $1.30 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.
“An antipathy towards the euro zone is leaving people with little choice other than to go into the ostensible safe haven of Treasuries,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “It’s following through from yesterday when the weakness in the stock market gave Treasuries support and a weak euro is making people less keen to hold bunds, so money is still flowing into Treasuries.”
The 30-year yield declined three basis points, or 0.03 percentage point, to 2.88 percent at 7:24 a.m. New York time, according to Bloomberg Bond Trader prices. They slid 21 basis points in the past three days. The 3.125 percent bond maturing in November 2041 gained 19/32, or $5.94 per $1,000 face amount, to 105.
Ten-year rates fell two basis points to 1.89 percent, approaching the record low of 1.67 percent set Sept. 23.
Stocks, Euro
The MSCI All Country World Index of stocks dropped for a fourth day. The euro fell 0.1 percent to 101.23 yen after touching 101.05, the least since Oct. 4.
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 2.64 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.
Negative Yields
Five-year TIPS rates of negative 83 basis points aren’t a deterrent to James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of the 21 primary dealers that underwrite the government’s debt.
“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 difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was 1.95 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 rally in Treasuries 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.”
Industrial Production
Industrial production increased 0.1 percent in November after rising 0.7 percent in October, the median forecast of economists surveyed by Bloomberg News shows. Manufacturing in the New York and Philadelphia areas picked up in December, regional reports may also show, according to separate surveys.
Demand for U.S. assets from investors outside the nation probably declined in October, based on the Bloomberg surveys before the Treasury Department report today.
Net purchases of long-term notes, bonds and equities totaled $62.5 billion, versus $68.6 billion in September, according to the responses.
Treasuries have returned 9.7 percent this year, the most since 2008, according to Bank of America Merrill Lynch indexes. TIPS, which offer both the safety of U.S. debt and protection against inflation, handed investors a 14 percent gain.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
