BLBG:Treasuries Trail Behind Corporate Bonds Before Report on U.S. Home Sales
Treasury two-year notes headed for a fourth weekly drop before a Commerce Department report that economists said will show purchases of new U.S. homes rose to a nine-month high, damping demand for safer assets.
U.S. government debt handed investors a 0.4 percent loss this year as the economy improved, while corporate and investment-grade and high-yield securities returned 2.9 percent, Bank of America Merrill Lynch data shows. Federal Reserve efforts to keep interest rates low are also encouraging investors to pursue higher-yielding alternatives. Columbia Management Investment Advisers LLC, with $325 billion in assets, is recommending investors buy high-yield bonds.
“We have consistently been getting better-than-expected economic data releases from the U.S.” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “The markets are being strongly influenced by central bank policy” and keeping yields stable, he said.
The two-year note yielded 0.31 percent at 9:57 a.m. London time, according to Bloomberg Bond Trader prices, after rising one basis point this week and nine basis points this month. The 0.25 percent security due in February 2014 traded at 99 7/8.
The 10-year yield was little changed at 2.01 percent, having climbed from a record low of 1.67 percent on Sept. 23.
The benchmark yield will climb to 2.8 percent by year-end, Purps said, citing UniCredit’s official forecast. The yield will increase to 2.5 percent by Dec. 31, according to a Bloomberg News survey of economists with the most recent predictions given the heaviest weighting.
Housing Market
U.S. new home sales climbed 2.6 percent in January to a 315,000 annual pace, according to the median estimate in a separate Bloomberg survey. Consumer confidence declined this month, according to another survey before Thomson Reuters/University of Michigan publishes the final figure.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs under a program it plans to conclude in June. The central bank is scheduled to buy as much as $2 billion of securities maturing from February 2036 to February 2042 today as part of the plan, according to the New York Fed website.
Fed Chairman Ben S. Bernanke has also pledged to keep the target for overnight lending between banks at almost zero until at least late 2014.
Ten-year Treasury yields have been in a range of 1.79 percent to 2.16 percent since the start of November as Europe’s debt crisis spurred demand for the safest securities.
G-20 Meeting
U.S., Chinese and Japanese officials say they will press euro-area countries to do more to merit outside help when the largest economies gather tomorrow for a meeting dominated by Europe’s sovereign-debt woes, days after Greece secured a second bailout. The administration of President Barack Obama says Europe needs to strengthen measures to prevent the debts of countries such as Italy and Portugal from becoming unsustainable.
Treasuries will “remain range-bound,” with the benchmark yield in a band of 1.8 percent to 2.1 percent, Credit Suisse Group AG, one of the 21 primary dealers that trade with the Fed, said in a report yesterday by Carl Lantz in New York.
Seven-Year Sale
Treasuries rose yesterday after a U.S. sale of $29 billion in seven-year notes drew stronger-than-average demand on speculation Europe’s sovereign-debt crisis hasn’t been contained. The European Commission said the euro-region economy will shrink this year, dragged down by Italy and Spain.
The bid-to-cover ratio, which gauges demand by comparing orders to buy with the amount of securities offered, was 3.11, compared with an average of 2.81 for the previous 10 sales. The auction was the last of three note offerings this week totaling $99 billion.
High-yield debt is “a compelling investment opportunity,” Minneapolis-based Columbia Management said in a report yesterday on the company’s website.
“High-yield bonds still allow for participation in the upside as the economy begins to recover, but with less exposure to downside volatility relative to the equity market,” according to the report written by Jennifer Ponce de Leon and Wendy Price.
An index of high-yield U.S. bonds has returned 4.5 percent this year according to the Bank of America indexes.
“Money continues to look for a home that has a high rate of return with a reasonable amount of safety,” said Marc Fovinci, who helps oversee $3 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “As long as we sit at these low rates, the more money keeps looking for higher yields.”
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
