BLBG:Treasuries Maintain Declines Before U.S. Housing Sales, Spending Reports
Treasuries held losses from yesterday on prospects U.S. reports on housing and consumer spending this week will add to evidence the world’s largest economy is gaining momentum.
Yields on benchmark 10-year notes maintained yesterday’s gain, the sharpest advance in more than seven weeks, as Asian stocks extended a global equities rally, sapping demand for the relative safety of U.S. government securities. The difference between yields on 10-year debt and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, touched 2.11 percentage points, the widest in two weeks. The Treasury sells $29 billion of seven-year notes today.
“The U.S. recovery is going well and the consensus is that there won’t be a double-dip recession,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World, a unit of Canada’s fifth- largest lender. “The market realizes that yields had fallen too much.”
Ten-year yields were little changed at 1.93 percent as of 1:25 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent securities due November 2021 changed hands at 100 19/32. The rate rose 11 basis points, or 0.11 percentage point, yesterday, the steepest climb since Oct. 27.
The yield on 10-year debt has fallen 136 basis points in 2011, set for the biggest annual decline in three years, as concern the European debt crisis will spread prompted investors to seek a refuge. The rate sank to a record 1.67 percent on Sept. 23.
The MSCI Asia Pacific Index of shares rose 1.9 percent today after the Standard & Poor’s 500 Index rallied 3 percent yesterday.
Housing, Spending
Sales of previously owned homes in the U.S. probably increased 2.2 percent in November, following a 1.4 percent gain the prior month, according to the median estimate of economists in a Bloomberg News survey before the National Association of Realtors releases the figure today. Consumer spending rose for a fifth month in November, adding 0.3 percent, economists forecast before a government report due Dec. 23.
Housing starts increased 9.3 percent in November, a separate government report showed yesterday, exceeding the highest estimate of economists surveyed by Bloomberg.
Japan’s benchmark 10-year yields added half a basis point to 0.98 percent today.
The U.S. sold $35 billion of five-year notes yesterday at a record low yield of 0.88 percent. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.86, versus an average 2.85 at the past 10 sales and 3.15 at the November offering. The government’s sale of $30 billion of four-week bills yesterday had a bid-to-cover of 9.07, a record high.
ECB Loans
Treasuries declined yesterday after the European Central Bank offered unlimited three-year loans to the region’s banks and Spain sold 5.64 billion euros ($7.4 billion) of bills, exceeding its maximum target.
Italian and Spanish two-year rates have slipped more than one percentage point since ECB President Mario Draghi announced the unprecedented loans on Dec. 8, as investors bet that banks will use the cash to buy government debt. Economists in a survey forecast banks would seek 293 billion euros. Results will be announced today and the loans will start tomorrow.
“It seems bad news out of Europe has been largely priced in,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co. “Uncertainty over the European debt crisis could still remain as a reason to buy Treasuries.”
Returns in 2011
U.S. government debt handed investors a 9.6 percent return this year through yesterday, Bank of America Merrill Lynch indexes showed. German bunds gained 9 percent and Japanese bonds advanced 2.1 percent, the indexes show.
The MSCI (MXAP) All Country World Index of equities handed investors an 8.1 percent loss this year, according to data compiled by Bloomberg.
An index of euro-area household sentiment probably fell to minus 21 this month, the lowest since August 2009, economists predicted before the Brussels-based European Commission releases the data today.
The head of the company that runs the world’s biggest bond fund said he sees a more than 1 in 3 chance that the euro zone will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008.
“It would be the equivalent of a sudden stop” in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said in an interview yesterday. “It would be really, really messy.”
The global economy suffered its worst recession since World War II after the collapse of Lehman Brothers Holdings Inc. in September 2008 triggered steep falls in global stock markets. Gross domestic product in the U.S., the world’s largest economy, shrank by 5.1 percent.
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
