BLBG:Treasuries Hold Two-Day Loss Before Consumer Confidence, Spending Reports
Treasuries held onto two days of losses before data this week forecast to show confidence and spending among U.S. consumers rose, a sign of a recovery in the world’s largest economy.
Thirty-year bond yields were one basis point from a one- week high as the Federal Reserve prepares to make its final 2011 purchase of long-term Treasuries today in its effort to lower borrowing costs. The extra yield investors demand to hold 30- year Treasuries instead of 10-year notes widened to 104 basis points, or 1.04 percentage points, the most in more than a week. Demand for U.S. debt was supported as investors continue to seek a refuge from the debt crisis in Europe.
“We’ve been seeing good data coming out of the U.S. and that indicates the economy is better than we had thought,” said Kiyoshi Ishigane, a senior strategist in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest publicly traded bank. “The recovery is supportive of the yields and Treasuries are likely to be sold.”
Yields on 30-year bonds were little changed at 3 percent at 1:39 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The rates touched 3.01 percent yesterday, the highest level since Dec. 14. The 3.125 percent securities maturing in November 2041 changed hands at 102 1/2.
Ten-year yields were little changed at 1.96 percent. The yield has fallen 133 basis points in 2011, set for the biggest annual decline in three years. The rate sank to a record low 1.67 percent on Sept. 23.
Confidence, Spending
The Thomson Reuters/University of Michigan final index of consumer sentiment probably increased to 68 this month from a preliminary reading of 67.7 and from 64.1 at the end of November, according to the median estimate of economists in a Bloomberg News survey before today’s data. That would be the strongest level in six months.
Consumer spending likely rose for a fifth month in November, adding 0.3 percent, economists in a separate poll forecast before the government report due tomorrow.
The Fed is scheduled to purchase today as much as $5 billion of Treasuries due in 2020 and 2021 in its last buy of the year in a program to lower borrowing costs. It is replacing $400 billion of short-term debt in its portfolio with longer- term securities through June.
Treasuries dropped yesterday after the U.S. sold $29 billion in seven-year securities to lower-than-average demand in the final of seven auctions of $177 billion of notes, bonds and inflation-indexed debt over the past two weeks, the most ever.
Weak Auction
The seven-year auction’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.68, versus 3.2 last month and an average 2.83 at the past 10 sales.
“It was a pretty weak auction; it’s setting a bad tone for the balance of the year,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 21 primary dealers that are obliged to bid in U.S. debt sales. “The Fed buybacks have been supporting the bond market of late. Given that the Fed isn’t buying anymore this year it makes for a weak outlook to end the year.”
Demand for U.S. debt was supported as Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the Mediterranean nation’s government bonds, according to people with direct knowledge of the discussions.
Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said people with knowledge of the talks, who declined to be identified because the negotiations are private. The IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio, the people said.
ECB Loans
The European Central Banks said yesterday it had awarded 489 billion euros in three-year loans in its longer-term refinancing operation, the most ever in a single operation and more than the median estimate of 293 billion euros in a Bloomberg News survey. Policy makers are flooding the banking system with cheap money in an attempt to stave off a credit crunch by encouraging banks to maintain lending.
“The European debt crisis is deeply rooted and it will continue to weigh on Treasury yields,” said Yuichi Onsen, Tokyo-based chief strategist at T&D Asset Management Co. “We’re seeing a tug of war between a recovery in the U.S. and Europe’s situation.”
U.S. government debt handed investors a 9.3 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 All Country World Index of equities handed investors an 8.2 percent loss over the same period, according to data compiled by Bloomberg.
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
