BLBG:Treasuries Snap 5-Day Rally After Data Shows China Manufacturing Expanded
Treasuries snapped a five-day rally after China unexpectedly reported growth in its factories and as economists said industry figures today in the U.S. will show manufacturing expanded at the fastest pace since June.
Government securities halted their advance before the Treasury Department announces today the amount of 3-, 10- and 30-year debt that it plans to sell over three sessions starting Feb. 7. Bonds will provide “muted” returns over the coming decade, according to Vanguard Group Inc., which manages $1.65 trillion in mutual fund assets. Manufacturing is helping the U.S. and China, the world’s biggest economies, curbing demand for the relative safety of U.S. debt.
“China’s growth is not as weak as people expected,” said Bin Gao, head of rate research in Hong Kong for Asia and the Pacific at Bank of America Merrill Lynch, one of the 21 primary dealers that underwrite the U.S. debt. “That should be bad news for Treasuries. It reduces the chance for the People’s Bank of China to ease” monetary policy.
U.S. 10-year yields rose one basis point to 1.81 percent as of 12:33 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 fell 3/32, or 94 cents per $1,000 face amount, to 101 22/32. The record low rate was 1.67 percent set Sept. 23.
Five-year notes yielded 0.71 percent, versus 0.6981 percent yesterday, the least ever.
Japan’s 10-year yield declined one basis point to 0.955 percent. The rate was as low as 0.935 percent on Jan. 16., a level not seen since November 2010.
Unexpected Growth
China’s purchasing managers’ index rose to 50.5 in January from 50.3 in December, the statistics bureau and logistics federation said today. The figure compares with a median estimate of 49.6 in a Bloomberg News survey of economists. A reading above 50 indicates growth.
The Institute for Supply Management’s U.S. factory index probably climbed to 54.5 last month from 53.1 in December, according to a Bloomberg survey. ADP Employer Services may say companies added 182,000 workers in January, versus 325,000 in December, another poll shows, highlighting the uneven nature of the U.S. recovery.
“The return outlook for broad bond portfolios is muted,” Vanguard said in a press release yesterday, citing research by Joe Davis, the head of the company’s investment strategy group, and Roger Aliaga-Diaz, a senior economist. “The diversification benefits of bonds are expected to persist despite the tendency for slightly higher interest rates over the next decade,” according to Vanguard, which is based in Valley Forge, Pennsylvania.
Refuge From Europe
Demand for the haven of Treasuries during Europe’s fiscal crisis sent Treasuries surging over the past 12 months.
U.S. debt due in 10 years and longer has rallied 33 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.
The Federal Reserve announced Jan. 25 that it plans to keep its benchmark interest rate near zero until at least the end of 2014, and Chairman Ben S. Bernanke said he is considering buying bonds to sustain the expansion.
“The Fed won’t raise rates for a long time,” 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. “This stance gives the market a green light to buy.”
Ten-year yields will probably be less than 2 percent for the coming weeks, he said.
Borrowing costs won’t last at that level through 2012, Bloomberg surveys of economists show.
The 10-year rate will advance to 2.59 percent by year-end, based on the responses, with the most recent forecasts given the heaviest weightings.
To contact the reporter 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
