BLBG:Treasuries Snap Rally as Drop in Yields Pares Demand Amid Economic 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.
America’s debt securities were little changed after Italy failed to raise the maximum target at a bond auction while borrowing costs decreased. Standard & Poor’s 500 Index futures increased 0.2 percent, reducing demand for a refuge.
“You need steady flows of bad news to justify yields at these low levels,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA 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.”
Yields on 10-year notes dropped one basis point, or 0.01 percentage point, to 1.91 percent at 7:10 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in November 2021 increased 2/32, or 63 cents per $1,000 face amount, to 100 25/32. Yields fell to a record low 1.67 percent on Sept. 23.
U.S. economic growth will accelerate to 2.1 percent in 2012 from 1.8 percent this year, according to the median forecast of 70 economists in a Bloomberg News survey.
Pending sales of previously owned U.S. homes (USPHTMOM) rose 1.5 percent in November from the previous month, according to the median forecast in a separate Bloomberg News survey before today’s report from the National Association of Realtors. The gauge increased 10.4 percent in October.
Break-Even Rate
The difference (USGGBE10) between yields 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, known as the break-even rate, 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 America’s debt securities. The gain is the biggest since the depths of the financial crisis in 2008. The MSCI All Country World Index (MXWD) of stocks dropped 8 percent this year after accounting for reinvested dividends.
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.
Treasuries rallied 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.
‘Good Place’
“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 auctioned 7.02 billion euros ($9 billion) of debt today, falling short of the 8.5 billion-euro target. Yields fell from the previous auctions. 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.
“Italy was not able to raise the maximum amount they wanted to, but the fact that they managed to sell this much at the end of the year should be taken as a positive sign,” said Eric Wand, a fixed-income strategist at Lloyds TSB Bank Plc in London. “The level of excess liquidity from the ECB will remain elevated for a while, and some of that may get recycled into sovereign debt.”
The U.S. 10-year rate will increase to 2.67 percent by the end of 2012, according to the average forecast in a Bloomberg News survey of banks and securities companies, with the most recent projections given the heaviest weightings.
Yoshiyuki Suzuki, who helps oversee the equivalent of $70.6 billion as the head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo, said he may wait until yields climb to 2.5 percent before buying.
To contact the reporters 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: Robert Burgess at bburgess@bloomberg.net
