BLBG:Treasuries Have Worst Start to Year Since 2003 Before Home Sales Report
Treasuries are having their worst start to a year since 2003 before an industry report that economists forecast will show U.S. sales of existing homes rose to a 19-month high.
Government securities headed for a weekly loss as the U.S. economy improves and declining yields at European debt sales stoke speculation that the region’s fiscal crisis is easing. The Citi Macro Risk Index (MXWD), based on volatility levels and investor appetite for higher-yielding assets, dropped to a five-month low of 0.601 yesterday.
“The flight to quality is temporarily receding,” said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which oversees the equivalent of $42.7 billion and is a unit of Japan’s second-largest publicly traded bank by assets. “The U.S. economic numbers recently are improving. The European situation is gradually improving.”
Ten-year yields held at 1.98 percent as of 2:58 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 changed hands at 100 6/32.
The rate has increased 12 basis points, or 0.12 percentage point, this week. The difference between two- and 10-year yields widened to 1.76 percentage points yesterday, the most since Jan. 6.
Japan’s 10-year rate rose one basis point to 0.98 percent, climbing for a fourth day.
Worst Since 2003
Treasuries have handed investors a 0.3 percent loss in 2012 as of yesterday, the worst start to a year since 2003, based on Bank of America Merrill Lynch data.
U.S. corporate bonds have returned 0.7 percent this year, German bunds fell 0.1 percent and Japanese sovereign debt was little changed, the Bank of America figures show.
The MSCI All Country World Index (MXWD) of stocks advanced 4.8 percent in the period.
Europe’s debt crisis and the threat of a U.S. economic slowdown combined to send Treasuries up 9.8 percent last year, the most since 2008.
U.S. home purchases increased 5.2 percent last month to a 4.65 million annual rate, the most since May 2010, according to the median forecast of 75 economists surveyed by Bloomberg News before the National Association of Realtors report today.
Initial jobless claims plunged to 352,000 in the week ended Jan. 14, the lowest level since April 2008, the Labor Department said yesterday.
Cheaper Fundraising
France and Spain sold 14.6 billion euros ($18.9 billion) of bonds yesterday, with funding costs in both nations falling in the first sale of medium and long-term debt since Standard & Poor’s downgraded their ratings on Jan. 13.
Greece’s government and private creditors convene today for a third day of talks on how to reduce the nation’s debt and avert a collapse of the economy.
Yields indicate investors are becoming more willing to lend. The three-month London interbank offered rate for loans in dollars was at 0.561 percent, headed for a second weekly decline, the longest stretch since June.
The difference between five-year swap rates and the yield on same maturity Treasuries shrank for a third week to 31.63 basis points, a run of declines not seen since February.
Investors use swaps to exchange fixed and floating interest-rate obligations. The difference, the gap between the fixed component and the Treasury rate, is a gauge of demand for higher-yielding assets versus sovereign debt.
Recovery Won’t Last
Mizuho Asset’s Nakamura is among those who say the pickup in the U.S. economy won’t last.
The World Bank said this week the U.S. will expand 2.2 percent in 2012, while the euro area will contract 0.3 percent.
“The global economic outlook will remain challenged,” William O’Donnell, head U.S. government-bond strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc’s RBS Securities primary dealer unit, wrote in a note to clients. “We advocate that longer-term investors use back-ups to reload on longs,” or bets bonds will gain.
Ten-year Treasury yields will rise to 2.5 percent by year- end, according to a report yesterday by RBC Capital Markets LLC, one of the 21 primary dealers that trade with the Federal Reserve.
“Weak but positive growth should allow rates to grind higher barring an increase in European stress,” according to the report by analysts including Michael Cloherty, the head of U.S. rates strategy in New York.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
