BLBG:Treasuries Decline on Stock Advance, Signs of Accelerating Global Growth
Treasury 10-year notes fell for the first time in five days as European and Asian stocks rose amid signs global economic growth is improving, damping demand for the safety of U.S. government debt.
Longer-maturity bonds led losses before U.S. reports this week that economists said will show a factory gauge and the job market improved, threatening to end a rally that pushed Treasuries up last year by the most since 2008. Data this week showed manufacturing in Germany, China and Australia expanded, adding to evidence of stronger global growth. Ten-year yields (USGG10YR) rose above those on similar-maturity German bunds.
“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 10-year yield (USGG10YR) rose six basis points, or 0.06 percentage point, to 1.94 percent at 6:59 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 fell 17/32, or $5.31 per $1,000 face amount, to 100 17/32. The 30-year yield climbed six basis points to 2.95 percent.
Ten-year Treasury futures expiring in March fell 15/32 to 130 21/32. The Stoxx Europe 600 Index of shares climbed 0.7 percent, and futures on the Standard & Poor’s 500 Index gained 1.8 percent. The dollar fell 0.9 percent to $1.3047 per euro.
Factory Growth
The Institute for Supply Management’s factory index (NAPMPMI) climbed to a six-month high of 53.4 in December, according to a Bloomberg News survey 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 climbed to 50.2 last month from 47.8 in November, the Australian Industry Group and PricewaterhouseCoopers LLP said.
The decline in 10-year Treasuries pushed yields three basis points above those (USGG10YR) on German bunds. The trend for higher U.S. yields relative to Europe’s benchmark government debt may continue on speculation the world’s largest economy will outperform Europe, according to Patrick Jacq, a senior fixed- income strategist at BNP Paribas SA.
‘Slightly Better’
“Economic data and prospects in the U.S. are slightly better than in the euro zone,” Paris-based Jacq said. “For the coming months, we see yields on U.S. debt rising above the benchmark in Europe.”
Treasury yields (USGG10YR) typically increase in the first four months of the year, based on historic data, while bund yields have historically fallen in January, before rising in the next four months, MacNeil Curry, head of foreign-exchange and interest- rates technical strategy at Bank of America Corp. in New York, wrote in an investor report dated yesterday.
The Federal Reserve will publish minutes of its Dec. 13 policy meeting today.
“The December minutes will give Fed officials another opportunity to further guide market expectations as to what to expect early in the new year,” Harvinder Sian, a fixed-income strategist at Royal Bank of Scotland Plc in London, wrote in an investor note today. “We expect the Fed to announce an enhanced communication strategy.”
Bearish Stance
Treasuries gained 9.8 percent last year, according to Bank of America Merrill Lynch indexes, on demand for safest assets. The rally will give way to losses in the first quarter, Bloomberg surveys of economists show. Ten-year yields will climb to 2.17 percent by March 31, the median forecast shows.
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
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.
Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs. Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
