BLBG:Treasuries Advance as European Debt Concern Boosts Demand for Safer Assets
Treasuries advanced before Italy auctions as much as 20 billion euros ($26.1 billion) of debt this week, as concern Europe’s debt crisis will harm global growth supported demand for the relative safety of U.S. bonds.
Treasuries headed for an 8.9 percent return in 2011, which would be the biggest annual gain since 2008, according to a Bank of America Merrill Lynch index. The world economy is in danger because of Europe’s financial woes, said Christine Lagarde, the International Monetary Fund’s Managing Director. A “few” Bank of Japan board members said turmoil from the debt crisis and the yen’s appreciation increased risks to growth, according to minutes of last month’s board meeting published today.
“It’s quite a big amount Italy is targeting and in these thinly-traded markets that could be a bit of a concern,” said Elwin de Groot, an economist at Rabobank Nederland in Utrecht, Netherlands. “The fundamental concerns are still very much in place and that’s keeping a lid on yields.”
Ten-year Treasury yields fell one basis point to 2.01 percent at 10:47 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent security due November 2021 added 1/8, or $1.25 per $1,000 face amount, to 99 7/8.
The rate has dropped 128 basis points in 2011, or 1.28 percentage points, set for the biggest slide in three years.
Italian Sales
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. The yield on Italian 10-year bonds climbed 10 basis points to 7.08 percent.
Europe has made progress in tackling the turmoil but needs to speed up the implementation of crisis-fighting measures, Lagarde said in an interview, Le Journal du Dimanche reported. The U.S. is already being affected and growth forecasts for China, Brazil and Russia are also being lowered, she said, according to the report.
“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.”
The difference between 10-year yields on conventional and inflation-linked Treasuries, or the so-called breakeven rate, narrowed two basis points to 2.06 percentage points.
Bearish Outlook
Still, 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.
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.
A separate report may show home prices in 20 U.S. cities probably fell at a slower pace. The S&P/Case-Shiller index of property values dropped 3.2 percent in October from the same month in 2010, the smallest year-over-year decrease since January, according to the median forecast of economists.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
