BLBG:Treasury 10-Year Notes Fall for 2nd Straight Day Before Inflation Report
Treasuries dropped for a second straight day before reports forecast by economists to show leading indicators rose and consumer prices increased, discouraging demand for the safest assets.
Yields (USGG10YR) advanced on speculation the global economy will weather the European sovereign-debt crisis and optimism that Greece will get a bailout. U.S. debt securities have lost 0.5 percent this year, while corporate bonds have returned 2.3 percent, according to Bank of America Merrill Lynch indexes.
“Treasury yields have a bit more leeway on the upside,” said Orlando Green, a fixed-income strategist at Credit Agricole SA in London. “That’s not surprising given that the macroeconomic data has been generally better.”
Yields on 10-year notes rose one basis point, or 0.01 percentage point, to 2 percent at 6:44 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 fell 1/8, or $1.25 per $1,000 face amount, to 100. The yields, which slid to a record low 1.67 percent on Sept. 23, have increased almost one basis point this week.
The New York-based Conference Board’s index (SXXP) of leading economic indicators, which signals the outlook for three to six months, rose 0.5 percent in January after a 0.4 percent gain in December, according to a Bloomberg survey before today’s data.
The Stoxx Europe 600 Index (SXXP) gained 0.5 percent, pushing its advance this year to 8.6 percent. Standard & Poor’s 500 Index futures were little changed.
‘Not Satisfactory’
“Treasury yields are not satisfactory,” said Sungjin Park, who heads the $71 billion fixed-income division in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor.
U.S. government debt declined yesterday after a report showed initial claims for jobless benefits unexpectedly dropped to the lowest level since 2008. The 10-year yield increased six basis points, the most since Feb. 7.
BlackRock Inc., the world’s biggest money manager, is recommending company debt.
“The upside return prospects in Treasuries from today’s historically low yield levels appears modest at best,” Rick Rieder, chief investment officer for fundamental fixed-income portfolios at BlackRock, wrote on the company’s website. “We have long thought the corporate sector looked attractive,” he wrote. New-York based BlackRock manages $3.51 trillion.
Fed Outlook
A few members of the central bank’s policy-setting Federal Open Market Committee said the group may soon have to consider more asset purchases, while others said the economic outlook would have to deteriorate first, according to minutes of their Jan. 24-25 meeting issued Feb. 15.
Some bond bulls say inflation is in check, providing a reason to buy Treasuries.
Consumer prices climbed 2.8 percent in January from a year earlier, compared with 3 percent the month before, according to the median forecast in a Bloomberg News survey of economists before today’s Labor Department report. Prices increased 0.3 percent in January from December, according to the survey.
“Deflationary pressures will push yields down,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $41.7 billion. Ten-year yields will fall to 1.5 percent by June 30, said Nakamura, who predicted last year’s rally in Treasuries.
A measure of traders’ expectations for inflation that is tracked by the Fed is at 2.54 percent, compared with last year’s high of 3.23 percent. The five-year, five-year forward breakeven rate, which projects annualized price increases over a five-year period starting in 2017, is below its 2.76 percent average over the past decade.
Investors demanded 2.86 percentage points of extra yield to buy 30-year bonds instead of two-year notes. The spread has averaged 2.24 points over the past 10 years. Thirty-year bonds are among the securities most sensitive to inflation.
The Fed is scheduled to buy as much as $5 billion of Treasuries due from February 2018 to February 2020 today as part of its plan to hold down borrowing costs by exchanging shorter-term debt in its holdings for longer ones.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
