BLBG:Treasuries Advance as European Debt Concern Boosts Demand for Safer Assets
Treasuries advanced before Italy auctions 20 billion euros ($26 billion) of debt this week as the country faces a potential credit-rating cut, supporting demand for the relative safety of U.S. bonds.
U.S. government debt has returned 8.9 percent in 2011, set for the biggest annual gain since 2008, according to an index compiled by Bank of America Merrill Lynch. A “few” Bank of Japan board members said financial-market turmoil from the European debt crisis and the yen’s appreciation were increasing risks for growth, according to minutes of last month’s board meeting published today in Tokyo.
“It’s certain that Europe will enter a recession,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $42 billion. “That’s a positive factor for Treasuries.”
Ten-year Treasury yields fell two basis points to 2 percent as of 6:57 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security due November 2021 added 6/32, or $1.88 per $1,000 face amount, to 99 31/32.
The rate has dropped 129 basis points in 2011, or 1.29 percentage points, set for the biggest slid in three years.
Italy is scheduled to sell 9 billion euros of 179-day bills and as much as 2.5 billion euros of zero-coupon 2013 bonds tomorrow. The nation will auction debt due in 2014, 2018, 2021 and 2022 the following day.
Standard & Poor’s said this month it may lower the credit grades of 15 euro nations, including Italy, France and Germany.
Inflation Bets
The difference between 10-year yields on conventional and inflation-linked Treasuries, or the so-called breakeven rate, climbed to as high as 2.15 percentage points, the most since Nov. 14. U.S. inflation-protected debt has returned 13.9 percent in 2011, poised for the biggest annual gain since 2002.
A gauge of U.S. consumer confidence rose to 58.6 this month, the highest since July, according to the median estimate of economists surveyed by Bloomberg News. The New York-based Conference Board will release the figure today.
The Federal Reserve Bank of Richmond may say its overall business activity index for the central-Atlantic region rose to 5 in December from zero last month, another Bloomberg poll of economists shows. A gauge of manufacturing in Texas gained to 4.5 this month from 3.2 in November, according to a separate survey before data from the Dallas Fed.
‘Bullish Views’
“When bullish views increase about a U.S. recovery, the bias is for bonds to be sold,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest listed bank by market value. “U.S. economic indicators have all been good lately.”
Investors in a weekly survey by Ried Thunberg ICAP, a unit of ICAP Plc, the world’s largest interdealer broker, remained bearish on Treasuries, the company said. Ried’s index on the outlook on the market through March was 47 for the seven days ended Dec. 23 versus 49 the week before. A figure below 50 shows investors expect rates to increase.
The inflation rate rose to a three-year high of 3.9 percent in September and stood at 3.4 percent last month. The Fed pledged in August to keep its key interest rate at a record low of zero to 0.25 percent for two years to support a U.S. recovery.
Japan’s benchmark 10-year bond yield rose one basis point to 0.98 percent. They have fallen 13 basis points in 2011, poised for a second annual decline.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
