BLBG:Treasury Futures Heading for Steepest Weekly Drop in Two Months on Economy
Treasury futures contracts are poised for the steepest weekly decline in more than two months as House Speaker John Boehner agreed on a plan to extend a U.S. payroll-tax cut past its Dec. 31 expiration.
The benchmark 10-year bond yield rose as high as 1.98 percent on Dec. 21, the most in a week, amid signs economic growth in the world’s largest economy is being sustained. Consumer spending probably climbed in November, giving the U.S. economy a boost heading into 2012, economists forecast before a Commerce Department report today.
“The U.S. economy is showing signs of being one of those economies that will lead us out of this slow global growth environment,” said Grant Hassell, head of fixed income at AMP Capital Investors in Wellington, New Zealand. “The bigger picture is one of rising U.S. long-end yields.”
Ten-year futures contracts for March delivery fell 27/32, or $8.44 per $1,000 face amount, since Dec. 16 to 130 13/32 as of 10:53 a.m. in Singapore. That’s the biggest drop since the five days ended Oct. 14. Yields on Treasuries maturing in 2021 rose 10 basis points, or 0.1 percentage point, this week to 1.95 percent yesterday in New York. Japan is closed today for a public holiday.
The 10-year rate may rise to 2.5 percent by the second quarter of next year, Hassell said.
‘The Right Thing’
The agreement on extending the tax cut capped five days of wrangling triggered by a revolt by House Republicans over a two- month bipartisan deal reached in the Senate and passed Dec. 17 in an 89-10 vote. The House and the Senate will approve the deal by unanimous consent before Dec. 25, according to a statement issued by Boehner.
Boehner said at a news conference in Washington yesterday his members decided to “do the right thing for the American people even if it’s not exactly what we want.”
Commerce Department figures due today are forecast to show consumer purchases rose 0.3 percent after increasing 0.1 percent in October, according to the median estimate of economists surveyed by Bloomberg News. The report may also show incomes grew 0.2 percent, down from a 0.4 percent gain the prior month.
This week’s gain in 10-year yields pared to 134 basis points the drop since Dec. 31, 2010. The securities have returned 16.3 percent in 2011, more than the 9.3 percent gain in the broader Treasury market, according to Bank of America Merrill Lynch Indexes.
Pacific Investment Management Co., operator of the world’s biggest bond fund, said the U.S. economy may stagnate next year.
The U.S. economy may expand zero percent to 1 percent, weighed down by Europe’s crisis and a slowdown in China, Pimco said in an economic outlook posted on its website. Global growth will slow to 1 percent to 1.5 percent, from 2.5 percent in 2011, the Newport Beach, California-based firm forecast.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
