BLBG:Treasury Two-Year Notes Head for 4th Weekly Decrease
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 has lost 0.4 percent this year as the economy improved, while corporate investment-grade and high-yield securities have returned 2.9 percent, Bank of America Merrill Lynch data show. Federal Reserve efforts to keep interest rates low are spurring investors to seek higher- yielding alternatives.
“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,” keeping yields stable, he said.
Yields on two-year notes were little changed at 0.30 percent at 6:43 a.m. New York time, according to Bloomberg Bond Trader prices. The 0.25 percent securities maturing in February 2014 increased less than 1/32, or 31 cents per $1,000 face amount to 99 29/32. The yields have advanced almost one basis point this week.
Benchmark 10-year notes were little changed at 2 percent, having climbed from a record low 1.67 percent reached Sept. 23. The yields were little changed for the week.
Outlook for Yields
The 10-year yields will rise to 2.8 percent by year-end, said Purps, citing UniCredit’s projection. The yields will increase to 2.5 percent by Dec. 31, according to the average forecast in a Bloomberg News survey of economists, with the most recent predictions given the heaviest weighting.
U.S. new home sales climbed 2.6 percent in January to a 315,000 annual pace, according to the median estimate in a Bloomberg News survey before today’s report from the Commerce Department. America’s unemployment rate fell in January to a three-year low of 8.3 percent, a report showed Feb. 3.
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.
Yield Range
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 sustained demand for the safest securities.
U.S., Chinese and Japanese officials say they will press euro-area countries to do more to merit outside help when Group of 20 finance ministers and central bank governors gather in Mexico City tomorrow for a meeting dominated by Europe’s sovereign-debt woes, days after Greece secured a second bailout.
European officials will push other G-20 nations to commit fresh cash to the International Monetary Fund to help defuse the region’s fiscal crisis.
Treasuries rose yesterday after a U.S. sale of $29 billion in seven-year notes drew stronger-than-average demand on concern Europe’s debt crisis hasn’t been contained.
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 Bonds
Columbia Management Investment Advisers LLC, with $325 billion in assets, is recommending that investors buy high-yield bonds.
“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 risen 4.5 percent this year, according to the Bank of America Merrill Lynch 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
