BLBG:Treasury 10-Year Notes Decline as Investors Bet Factory Orders Increased
Treasury 10-year notes fell for a second day before a report economists say will show factory orders increased in November, adding to evidence the U.S. recovery is gathering momentum.
The decline pushed yields (USGG10YR) on the securities up to the most in a week. The rate was higher than yields on similar-maturity German debt for a second day amid bets growth in the U.S. will outpace that in Europe. Yields remained at less than 2 percent for a fifth day amid concern European nations will need to pay higher rates as they begin refinancing debt maturing this year.
“The U.S. economy keeps growing,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, Netherlands. “Fourth-quarter data has been much more positive than many of us expected. The main downside risk for Treasury yields is what’s going on in the euro zone.”
U.S. 10-year rates (USGG10YR) rose one basis point, or 0.01 percentage point, to 1.96 percent at 10:57 a.m. London time, after reaching 1.98 percent, the highest since Dec. 28, according to Bloomberg Bond Trader prices. The 2 percent securities due November 2021 fell 4/32, or $1.25 per $1,000 face amount, to 100 10/32.
The rate was four basis points higher (USGG10YR) than the yield on benchmark German bunds.
U.S. factory orders probably rose 2 percent in November from the prior month, according to the median forecast in a Bloomberg News survey of economists before the Commerce Department issues the data today. They declined 0.4 percent in October.
U.S. Manufacturing
Treasuries fell yesterday after a private report showed U.S. manufacturing (NAPMPMI) expanded in December at the fastest pace in six months.
“I’m bearish on Treasuries because the market is underestimating the strength of the U.S. economy,” said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $120.7 billion and is a unit of Japan’s second-biggest brokerage.
The U.S. 10-year yield is projected to advance to 2.69 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
Demand for safety helped Treasuries due in 10 years or more return 28 percent in the past year, the most among 144 government-bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes.
Fed Predictions
Europe’s bailout fund, the European Financial Stability Facility, plans to raise 3 billion euros ($3.9 billion) from a sale of three-year bonds as soon as this week, after Standard & Poor’s said in December it may lose its top credit rating. Germany sold 4.06 billion euros of 10-year bunds today at an average yield of 1.93 percent.
Italy and Spain will also sell debt later this month, as common currency members begin sales that may reach 262 billion euros in the first quarter and 865 billion euros in 2012, according to Deutsche Bank AG forecasts.
Euro-area services and manufacturing output contracted for a fourth month in December, London-based Markit Economics said in a report today.
Federal Reserve officials said yesterday they will start announcing their predictions for the central bank’s key interest rate. Last month, they repeated their view that economic conditions would warrant “exceptionally low levels for the federal funds rate at least through mid-2013.” They have kept the target near zero since December 2008.
‘Extend the Extended’
“This should effectively extend the extended period before the rate hike,” Michael Cloherty, the head of U.S. rates strategy at RBC Capital Markets LLC in New York, wrote in a report yesterday. The forecasts will probably show increases in borrowing costs will begin in 2014, according to RBC, which is one of the 21 primary dealers that trade with the central bank.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and foster economic growth, in a plan it announced in September. The central bank is scheduled to sell as much as $8.75 billion of securities due from May 2013 to October 2013 today as part of the program, according to the New York Fed’s website.
“The flight to quality because of the European situation and the Fed stance for monetary policy are keeping yields low,” said Hiroki Shimazu, an economist at SMBC Nikko Securities Inc., in Tokyo, a unit of Japan’s third-largest publicly traded bank by assets.
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
