BLBG:Treasury 30-Year Bonds Hold Losses as Stocks, U.S. Consumer Credit Gain
U.S. 30-year bonds held losses from yesterday as stocks rose and a Federal-Reserve report yesterday showed consumer credit surged by the most in 10 years, signaling households are more willing to borrow and spend.
Treasuries have failed to extend 2011’s rally as the world’s biggest economy shows signs of improving. The U.S. is scheduled to auction $32 billion of three-year notes today, after a sale of the securities last month attracted record demand. The government will sell $21 billion of 10-year debt tomorrow. German Chancellor Angela Merkel will meet International Monetary Fund Managing Director Christine Lagarde today to discuss Europe’s debt crisis.
“The strong consumer credit figures underlined the resilience of the U.S. economy, that’s given a lift to equities and put a bit of pressure on Treasuries,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets. “Today’s three-year auction will probably go smoothly, but the 10-year tomorrow might be a bit of a challenge because yields are so low.”
The 30-year yield increased one basis point, or 0.01 percentage point, to 3.04 percent at 8:16 a.m. in London, according to Bloomberg Bond Trader prices. The 3.125 percent bond due in November 2041 declined 1/8, or $1.25 per $1,000 face amount, to 101 3/4.
Ten-year yields rose one basis point to 1.97 percent after falling to a record low 1.67 percent on Sept. 23.
Consumer Borrowing
U.S. consumer credit increased by $20.4 billion in November, the most since November 2001, Fed figures showed yesterday in Washington. The unemployment rate fell to 8.5 percent last month, the least since February 2009, the Labor Department reported Jan. 6.
The Stoxx Europe 600 Index (SXXP) gained 0.9 percent, and futures on the Standard & Poor’s 500 Index (SXXP) gained 0.5 percent.
Treasuries fluctuated yesterday amid skepticism that Europe’s debt crisis will be resolved after the leaders of Germany and France said rules for closer fiscal union among the euro-area nations may be ready a month early. Demand for havens from the crisis drove 10-year Treasury yields down more than 140 basis points over 2011.
Euro-area leaders may complete a new budget rulebook aimed at containing the crisis by Jan. 30 and are considering accelerating capital contributions to the region’s bailout fund, Merkey said yesterday. She meets Lagarde today in Berlin.
‘Too Bullish’
“On the one hand the euro-region crisis is still at the forefront of the mind of many investors and this is supportive for Treasuries,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “On the other hand, we’ve seen some improvement in the U.S. economic data which would be negative for Treasuries. It is dangerous to be too bullish, but if there are some dips then we still favor some buying.”
Fed Bank of Atlanta President Dennis Lockhart said yesterday he sees the economy improving this year. Following his speech in Atlanta, he told reporters he is “open-minded” about the need for more stimulus.
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 buy as much as $1.5 billion of Treasury Inflation Protected Securities due from January 2018 to February 2041 as part of the program today, according to the New York Fed’s website.
Three-Year Auction
The three-year notes scheduled for sale today yielded 0.38 percent in pre-auction trading. The record low auction rate was 0.334 percent set in September. Last month’s sale drew a yield of 0.352 percent, with investors submitting bids for an unprecedented 3.62 times the amount of debt offered.
The Treasuries rally has further to go, according to Deutsche Bank AG, one of the 21 primary dealers that trade with the Fed. Ten-year yields will drop to 1.5 percent this year, the company in a report distributed by e-mail yesterday.
“Economic data continues to surprise to the upside,” according to the report by Dominic Konstam, the bank’s global head of interest-rate research in New York. “The relative robustness of Treasuries affirms aggressively the breakdown in the statistical relationship with economic data. We think this is because not much else matters, except Europe and to some extent skepticism about the sustainability of the recovery.”
Yield Forecasts
Most analysts expect yields to rise. Ten-year rates will advance to 2.1 percent by March 31 and 2.63 percent by Dec. 31, according to a Bloomberg survey of financial companies with the most recent forecasts given the heaviest weightings.
Treasuries have handed investors a 0.3 percent loss in January, according to Bank of America Merrill Lynch indexes. U.S. company bonds have returned 0.2 percent, and Treasury Inflation Protected Securities gained 0.6 percent.
The MSCI All Country World Index (MXWD) of stocks has gained 1.5 this year including reinvested dividends, according to data compiled by Bloomberg. Treasuries gained 9.8 percent in 2011 as the MSCI index slid 6.9 percent.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
