BLBG:Treasuries Gain for Fifth Day as Greek Debt Concern Supports Safety Bid
Treasuries advanced for a fifth day as concern that Greece is moving closer to defaulting on its debt boosted demand for the relative safety of U.S. securities.
The U.S. plans to sell $9 billion of 30-year Treasury Inflation Protected Securities today and will announce the size of two-, five- and seven-year auctions taking place next week. The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices over the life of the debt, was 2.21 percentage points. The 10-year average is 2.14 percentage points.
“The dollar is going back home and finding its way into Treasuries,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co. “Investors are hesitant to take risks because of the European debt crisis. I expect yields to remain low.”
Yields (USGG10YR) on 10-year debt fell two basis points, or 0.02 percentage point, to 1.91 percent as of 2:40 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 gained 5/32, or $1.56 per $1,000 face amount, to 100 25/32. Five-year notes yielded 0.78 percent, approaching the record low of 0.696 percent set Feb. 3.
Greek Aid
Euro-area finance ministers yesterday postponed a decision on aid totaling 130 billion euros ($169 billion) until at least Feb. 20 and possibly until Greek elections later in the year. Greece is approaching a bond redemption on March 20, when the government must make a 14.5 billion-euro payment or become the first member country in the currency’s 13-year history to default.
Japan’s five-year yield declined two basis points to 0.295 percent, a level not seen for more than five months.
U.S. yields that are approaching record lows are becoming unattractive to some investors as the economy shows signs of growth.
Housing starts in the U.S. probably rose 2.7 percent in January from December to a 675,000 annual rate, according to the median estimate of 79 economists surveyed by Bloomberg News before a report today from the Commerce Department. A separate report is projected to show manufacturing in the Philadelphia area expanded at a faster pace, according to another survey.
“Yields are not enough,” said Yoshiyuki Suzuki, the head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo, which has the equivalent of $70 billion in assets. “I’m bearish. The economy isn’t fantastic, but it’s not bad.”
The 10-year rate will climb to 2.5 percent by year-end, he said.
Treasury Auctions
Thirty-year TIPS yielded 0.60 percent, compared with 0.999 percent at the last auction of the securities on Oct. 20, which was the least since the government began issuing the securities in 1998.
Investors submitted orders to buy for 3.06 times the amount of debt offered, a record for the security.
Indirect bidders, the investor class that includes foreign central banks, purchased 43.2 percent of the debt. The average for the past five sales is 40.6 percent.
The Treasury will probably sell $35 billion of 2-year notes on Feb. 21, $35 billion of 5-year securities on Feb. 22 and $29 billion of seven-year debt on Feb. 23, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance. The amounts would be the same as the last time the government sold the securities in January.
Inflation Outlook
Investors betting on inflation in the years ahead pushed TIPS to an 18 percent gain in the past 12 months, based on Bank of America Merrill Lynch indexes. Conventional Treasuries returned 11 percent, the data show.
Fidelity Investments, Vanguard Group Inc. and Pacific Investment Management Co., which together oversee $4.53 trillion, all say U.S. inflation will be contained in 2012, in articles this month on their websites.
A Labor Department report today will probably show the producer price index gained by 0.4 percent in January, after a 0.1 percent drop the previous month, according to a Bloomberg survey of economists. A report from the department tomorrow may show consumer prices rose by 0.3 percent last month after being unchanged in December, a separate survey indicates.
Five-year inflation swaps, which allow investors to exchange fixed interest rates for returns equivalent to the consumer price index, climbed to 2.36 percent on Feb. 14, the most since August, according to data compiled by Bloomberg. The five-year average is 2.11 percent.
Investors demanded 2.81 percentage points of extra yield to buy 30-year bonds, which are among the securities that are the most sensitive to inflation, instead of two-year notes. The spread has averaged 2.67 points over the past five years.
A measure of traders’ inflation expectations that the Federal Reserve uses to help guide monetary policy is at 2.59 percent, down from as high as 3.23 percent last year. The five- year, five-year forward breakeven rate, which projects annualize price increases over a five-year period beginning in 2017, is below its 2.76 percent average over the past decade.
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
