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.”
Yields (USGG10YR) on 10-year debt fell two basis points, or 0.02 percentage point, to 1.91 percent as of 7 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 gained 4/32, or $1.25 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.
Euro-area officials yesterday postponed a decision on aid totaling 130 billion euros ($169 billion) until at least Feb. 20. 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.
Fed Operations
Japan’s five-year rate declined two basis points to 0.295 percent, a level not seen for more than five months.
The Federal Reserve is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to February 2042 today as part of its plan to hold down borrowing costs by exchanging shorter-term securities in its holdings for longer maturities.
U.S. yields that are approaching record lows are becoming unattractive to some investors as the economy shows signs of growth.
“I’m bearish” on Treasuries, 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. “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.
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 will show manufacturing in the Philadelphia area expanded at a faster pace, according to another survey.
Treasury Auctions
“We’re going back up” in yield, said Jeffrey Rosenberg, the chief investment strategist for fixed income at BlackRock Inc., the world’s biggest asset manager. “It’s just a question of when,” he told Tom Keene yesterday on Bloomberg Television’s “Surveillance Midday,” in New York.
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.
The Treasury will probably sell $35 billion of two-year notes on Feb. 21, $35 billion of five-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.
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 show producer prices gained 0.4 percent in January, after a 0.1 percent drop the previous month, according to a Bloomberg survey of economists. A report 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 annual 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
