BLBG:Treasuries Decline on Europe, Asia Stock Gains, Signs of Quickening Growth
Treasury 10-year notes fell for the first time in five days as stocks rose amid signs manufacturing is improving around the world, damping demand for the safety of U.S. government debt.
Two-year yields rose from a two-week low (USGG2YR) as economists said the Institute for Supply Management’s factory index and Labor Department job data this week will show improvement, threatening to end a rally that pushed Treasuries up last year by the most since 2008. Australian manufacturing grew for the first time in six months, adding to evidence the global economy is recovering after German and Chinese reports beat estimates this week.
“We have some weakness in the Treasuries’ complex,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “Funds are being invested in equities and we are getting some positive notes from the hard data. U.S. economic data have been consistently surprising on the positive side.”
The benchmark 10-year yields (USGG10YR) rose six basis points, or 0.06 percentage point, to 1.94 percent at 9:41 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note maturing in November 2021 fell 17/32, or $5.31 per $1,000 face amount, to 100 17/32. The two-year yield climbed one basis point to 0.25 percent.
The Stoxx Europe 600 Index of shares climbed 0.8 percent after a 1.1 percent advance yesterday, and the MSCI Asia Pacific excluding Japan Index rose 1.2 percent. The dollar fell the most in two weeks versus the euro, weakening as much as 0.6 percent to $1.3009.
Factory Growth
The ISM factory index (NAPMPMI) climbed to a six-month high of 53.4 in December, according to economists surveyed by Bloomberg News before today’s report. U.S. payrolls rose by 150,000 in December, after a 120,000 gain in November, a separate survey showed ahead of the data on Jan. 6.
China’s purchasing managers’ index was at 50.3 from 49 in November, the logistics federation said Jan. 1. In Germany, the index for December was revised to 48.4 from 48.1, Markit Economics said yesterday. Australia’s manufacturing index was 50.2 last month compared with 47.8 in November, the Australian Industry Group and PricewaterhouseCoopers LLP said.
The Federal Reserve will publish minutes of its Dec. 13 policy meeting today.
Treasuries gained 9.8 percent last year, according to Bank of America Merrill Lynch indexes, on demand for the safest securities. The rally will give way to losses in the first quarter, Bloomberg surveys of economists show. Ten-year yields will climb to 2.12 percent by March 30, a median forecast shows.
‘Cutting Back’
Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, kept their bearish stance on Treasuries. Ried’s index on the market outlook through June was 44 for the seven days ended Dec. 30, unchanged from the week before. A figure below 50 shows investors expect Treasuries to decline.
“I’m cutting back on long-term maturities worldwide,” said Sungjin Park, who heads the $67.4 billion debt division in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor. “The macroeconomic picture has shown some hope. It’s better than expected.”
Treasury bulls say Europe’s fiscal crisis will maintain demand for the highest-rated debt. German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to meet in Berlin on Jan. 9 to work on ways to curb government spending in the region.
“We look for Treasuries to rally in the first quarter” as European governments borrow by selling bonds, said Bin Gao, head of interest-rate research for Asia and the Pacific at Bank of America Merrill Lynch in Hong Kong. “Supply from Europe will be very heavy and the market may not be able to absorb all of it.”
U.S. 10-year yields will fall to 1.75 percent by the end of first quarter, according to Bank of America, one of the 21 primary dealers that trade with the Fed.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
