BLBG:Treasuries Drop, Snapping Two-Day Gain, Before Housing, Spending Reports
Treasuries declined, snapping a two- day gain, before U.S. data on housing and consumer spending this week forecast to show the world’s largest economy is strengthening.
Ten-year yields climbed from an 11-week low as Asian stocks advanced, sapping demand for safer assets. Federal Reserve Bank of Richmond President Jeffrey Lacker predicted the U.S. economy will grow at least 2 percent next year and inflation is likely to meet central bank goals. The U.S. government will sell $35 billion of five-year notes today.
“It’s not really surprisingly that you’re seeing yields bump up a bit, given that things are a little bit quieter on the global risk front and then you look at U.S. data and think things aren’t that bad,” said Orlando Green, a London-based fixed-income strategist at Credit Agricole Corporate & Investment Bank.
Ten-year yields rose four basis points, or 0.04 percentage point, to 1.85 percent as of 8:21 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent securities due November 2021 fell 12/32, or $3.75 per $1,000 face amount, to 101 10/32. The rate slid to 1.80 percent yesterday, the lowest since Oct. 4.
The 10-year yield has fallen 145 basis points in 2011, set for the biggest annual decline since 2008. It fell to a record 1.67 percent on Sept. 23.
U.S. Economy
Housing starts in the U.S. increased 1.1 percent last month from October when they declined 0.3 percent, according to economist estimates before the Commerce Department releases the figures today. Consumer spending rose in November, adding 0.3 percent, another survey of economists showed before the government report due Dec. 23.
“I am hard-pressed to see the rationale for any further monetary stimulus” with growth at 2 percent or higher and inflation around 2 percent, Lacker told reporters yesterday. “Recent economic news in the U.S. has been positive for a couple months now.”
Treasuries of all maturities up to 30 years yield less than the U.S. inflation rate of 3.4 percent. Daiwa SB’s Katayama said Treasuries are overvalued and that his holdings of U.S. government securities are centered in shorter-maturity debt.
Demand for Treasuries was supported as Spain and Greece prepare to sell bills today amid concern a debt crisis in Europe will send the region’s economy into recession.
Bill Sales
Spain will auction bills today maturing in 91 days and 182 days. Greece will offer 1 billion euros ($1.3 billion) of 91-day securities. The Ifo institute’s business climate index for Germany, based on a survey of 7,000 executives, probably fell to the lowest in 21 months in December, according to a Bloomberg News survey of economists before the report today.
Members of the euro area, including Spain and Italy, will provide 150 billion euros through bilateral loans to the International Monetary Fund to cope with the economic slowdown and tensions in financial markets, European Union finance ministers said yesterday.
“The environment is generally positive for Treasuries,” said Shinji Kunibe, the chief portfolio manager for fixed-income investment in Tokyo at Nissay Asset Management Corp., which manages the equivalent of $70 billion. “It’s certain that Europe will enter recession.”
The extra yield investors demand to hold 10-year bonds instead of five-year notes dropped to 100 basis points yesterday, the least since Oct. 10.
Kunibe said he is “overweight” on five-year notes and holds longer-maturity debt in case the yield curve flattens further.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
