BLBG:Treasuries Snap Gain as Decline in Yield Cuts Demand Amid Signs of Growth
Treasuries snapped a two-day gain as yields that are about a quarter percentage point away from a record low reduced demand among investors forecasting the U.S. economy will accelerate in 2012.
Benchmark 10-year notes yield 1.47 percentage points less than the rate of inflation, versus 1.8 percentage points more at the end of 2010. Treasury rates indicate investors expect 1.99 percent inflation (USGGBE10) for the next decade, six basis points more than the current 10-year Treasury yield.
“You need steady flows of bad news to justify yields at these low levels,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “While we have some negative news out of Europe that supports demand for safe assets, the U.S. economic picture has started to improve.”
The yield on the 10-year note rose one basis point, or 0.01 percentage point, to 1.93 percent at 10:37 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 fell 2/32, or 63 cents per $1,000 face amount, to 100 21/32. The yield fell to a record low 1.67 percent on Sept. 23.
Yoshiyuki Suzuki, who helps oversee the equivalent of $70.6 billion as the head of fixed income at Fukoku Mutual Life Insurance Co., said he may wait until yields climb to 2.5 percent before buying.
U.S. economic growth will quicken to 2.1 percent in 2012 from 1.8 percent this year, according to a Bloomberg News survey of banks and securities companies.
Home Sales
Pending sales of previously owned U.S. homes (USPHTMOM) rose 1.5 percent in November from the previous month, according to the median estimate of economists surveyed by Bloomberg News before the National Association of Realtors report. The gauge increased 10.4 percent in October.
The difference (USGGBE10) between rates on 10-year notes and Treasury Inflation Protected Securities of 1.99 percentage points compares with the 10-year average of 2.13 percentage points. The spread is a gauge of trader expectations for consumer prices over the life of the debt.
Treasuries have returned 9.6 percent this year, according to Bank of America Merrill Lynch data, as the European debt crisis led investors to seek the relative safety of U.S. bonds. The gain is the biggest since 2008, when the U.S. suffered its biggest recession since the Great Depression.
TIPS Gain
TIPS handed investors a 14 percent return in 2011, the most since 2002, and U.S. corporate bonds advanced 6.5 percent, based on the indexes. German bunds climbed 9.3 percent, and Japanese government bonds returned 2 percent.
The MSCI All Country World Index (MXWD) of stocks dropped 8 percent this year after accounting for reinvested dividends.
Treasuries gained yesterday after the European Central Bank said its balance sheet soared to a record following last week’s lending to keep credit flowing in the region.
Two years of summits have failed to contain the European debt crisis that has led to bailouts of Greece, Ireland and Portugal and threatens Italy and Spain.
“U.S. Treasuries are a good place to be,” said Hideo Shimomura, who helps oversee the equivalent of $77 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest bank. “We are focused on the most liquid markets” as havens, he said.
Italy Auctions
Italy sold less three- and 10-year debt than planned at an auction today while borrowing costs declined in the country’s final debt offering of the year. The nation sold 7.02 billion euros ($9.05 billion) of notes and bonds compared with a maximum target of 8.5 billion euros, the Treasury said.
Yesterday it sold 9 billion euros of 179-day bills at 3.251 percent, down from 6.504 percent at the previous auction on Nov. 25. The nation’s new zero-coupon notes due in September 2013 had a yield of 4.85 percent, versus 7.81 percent in November.
“There’s a certain amount of risk-off that’s going to stay in the market as Europe goes through its gyrations,” said Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee.
U.S. yields will rise next year, according to a Bloomberg survey of economists. The 10-year rate will be 2.67 percent by the end of 2012, based on the responses, with the most recent forecasts given the heaviest weightings.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
