BLBG:Treasuries Halt Advance as Greece’s Parliament Approves Austerity Measures
Treasuries (YCGT0025) halted an advance after the Greek government won approval from parliament for austerity measures to secure an international bailout, curbing demand for the relative safety of U.S. debt.
The appeal of the securities was limited before a report tomorrow forecast to show U.S. retail sales rose in January by the most in four months. Nomura Holdings Inc., one of the 21 primary dealers that trade with the Federal Reserve, said it is bearish on Treasuries because of the strength of recent economic data. U.S. bonds have lost 0.7 percent so far in February, following a 2.1 percent gain over the previous three months, according to a Bank of America Merrill Lynch index.
“The markets are optimistic that Greece can receive a bailout package and avoid a disorderly default,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third-largest listed bank. “Recent data have been suggesting resilience in the U.S. economy. Treasuries are being sold a bit.”
The yield on the 10-year note was little changed at 2 percent at 2:07 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due February 2022 changed hands at 100. The yield fell five basis points on Feb. 10.
Greece’s legislature gave backing to Prime Minister Lucas Papademos’s austerity bill, with 199 lawmakers voting for the measure and 74 against, said Parliament Speaker Filippos Petsalnikos in remarks carried live on state-run Vouli TV. “Voting for the economic program and opening the road for a loan accord sets the basis for the modernization and recovery of the economy,” Papademos told parliament.
Retail Sales
Sales (RSTAMOM) at U.S. retailers probably gained 0.8 percent last month after a 0.1 percent advance in December, according to the median forecast of economists surveyed by Bloomberg News before Commerce Department figures due tomorrow.
That would follow a Feb. 3 Labor Department report that showed the jobless rate unexpectedly fell in January to 8.3 percent, the lowest since February 2009. The 243,000 increase in jobs was the biggest in nine months.
Nomura has a “near-term” target of 2.16 percent for 10- year yields and a medium-term projection of 2.40 percent, according to a Feb. 10 report by George Goncalves, the head of rates research, and Marcus Phua, a strategist, in New York.
Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, maintained their bearish stance on Treasuries. Ried’s index on the market outlook through June slid to 44 for the week ended Feb. 10 from 45 the previous week. A figure below 50 shows investors expect U.S. government debt to drop.
Inflation in Check
Japan’s benchmark 10-year yield added half a basis point to 0.98 percent today after a report showed the nation’s economy shrank an annualized 2.3 percent in the fourth quarter.
The market for Treasuries is embracing Fed Chairman Ben S. Bernanke’s view that signs of improving growth mask threats to the U.S. economy, keeping inflation in check.
Traders are betting that government debt yields will remain subdued in the years ahead, even with oil prices stuck at around $100 a barrel. The cost to exchange fixed- for floating-rate payments in a decade has averaged 3.38 percent this year. The so-called forward 10-year swap rate, which has fallen from last year’s peak of 5.47 percent in February, is trading at the same levels as early 2009.
Gross Boosts Holdings
While the U.S. jobless rate fell and manufacturing picked up, investors have kept yields on Treasuries near record lows as the Fed lowered forecasts for economic growth and inflation. Bill Gross, who manages the world’s largest bond fund at Newport Beach, California-based Pacific Investment Management Co., has boosted his holdings of U.S. government debt to the highest level since July 2010.
“The market is just not buying that the recent improvement will be sustained,” said Ruslan Bikbov, a fixed-income strategist in New York at Bank of America Corp. “Expectations for lower growth ahead, a shortage of riskless assets and upcoming U.S. fiscal tightening are combining with the fact the Fed is on hold through late 2014 to push forward rates lower.”
Producer prices probably rose 0.4 percent in January, after falling 0.1 percent the month before, according to the median forecast in a Bloomberg survey of economists before the Labor Department reports the figure Feb. 16. Consumer prices may have increased 0.3 percent, after being unchanged in December, according to separate poll ahead of the Feb. 17 data.
‘Sweet Spot’
“There’s no inflation or deflation,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “We’re in a sweet spot.”
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.22 percentage points. The average for the past decade is 2.14 percentage points.
The Fed is scheduled to buy as much as $2 billion of Treasuries due from 2036 and 2041 today as part of a plan announced in September to replace $400 billion of shorter maturities in its holdings with longer-term debt to cap borrowing costs.
-- With assistance from By Liz Capo McCormick in New York. Editors: Naoto Hosoda, Benjamin Purvis
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
