BLBG:Treasuries Snap Gain on Speculation Factory Orders Rose
Treasuries snapped a gain from yesterday before a Commerce Department report that economists said will show orders for goods from U.S. factories rose by the most in three months, damping demand for the safest assets.
Government bond yields are likely to increase in the months ahead, according to Columbia Management Investment Advisers LLC, the Boston fund manager that oversees $326 billion. An improving job market and rising stock prices are helping drive U.S. consumer spending, fueling speculation Treasuries will extend losses following their worst quarterly performance since 2010.
“We would need to see a significant downturn in U.S. data or a strongly dovish signal from the Fed for the market to build on yesterday’s gains,” said Peter Chatwell, a London-based fixed-income strategist at Credit Agricole Corporate & Investment Bank.
The 10-year note yielded 2.19 percent at 9:45 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2022 traded at 98 10/32. The yield dropped three basis points, or 0.03 percentage point, yesterday. The average over the past decade is 3.85 percent.
Ten-year yields were three basis points above the 200-day moving average of 2.16 percent. That level is providing “strong resistance,” Chatwell said. Resistance refers to an area where technical analysts anticipate sell orders may be clustered.
‘Modestly Higher’
Treasury yields will move “modestly higher” in the coming months, Colin Lundgren, the head of fixed income, and Robert McConnaughey, the head of equity, at Columbia Management wrote in a report yesterday.
“The low level of government bond yields provides little coupon protection to offset price losses if and when rates rise,” according to the report.
Orders to U.S. factories increased 1.5 percent in February after a 1 percent decline in January, according to the median estimate of economists surveyed by Bloomberg News before the report today.
“Markets want to believe that the worst is over,” Gabriel Stein, a director at Lombard Street Research Ltd. in London, said in an interview on Bloomberg Television’s On The Move with Francine Lacqua.“The U.S. economy is looking much better.”
Treasuries fell 1.3 percent in the first quarter, the biggest decline since the last three months of 2010, according to Bank of America Merrill Lynch indexes.
The MSCI All-Country World Index of stocks returned 12 percent in the period including reinvested dividends, data compiled by Bloomberg show.
‘Too Low’
“Yields are too low,” said Kei Katayama, who invests in U.S. bonds at Tokyo-based Daiwa SB Investments Ltd., which oversees the equivalent of $60.7 billion including Asia’s second-largest mutual fund. “Equities will stay strong. Recent economic data are in line with steady, slow growth.” Daiwa SB favors shorter maturities, Katayama said.
Slowing economic growth in Europe is helping maintain demand for the relative safety of U.S. debt, said Tomohisa Fujiki, a rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. The company’s U.S. arm is one of the 21 primary dealers that are required to bid at the government bond sales.
“We’ll continue to be swayed by headlines out of Europe since not all the problems are resolved yet,” Fujiki said.
European Unemployment
Euro-region unemployment rose to the highest in more than 14 years and manufacturing contracted, reports showed yesterday.
Spain’s government is determined to tackle its debt and there’s no need to discuss bailing out the euro-area’s fourth- largest economy, Volker Kauder, a parliamentary leader from German Chancellor Angela Merkel’s party, said yesterday.
Treasuries rose yesterday as the Federal Reserve bought $4.5 billion of government debt in the first of four rounds of purchases over three days.
The U.S. central bank is consolidating the purchases in a three-day period before the Good Friday holiday on April 6, with trading scheduled to stop at noon New York time that day.
The purchases are part of a program to replace $400 billion of shorter-term debt in the Fed’s holdings with longer maturities to hold down borrowing costs. The central bank is scheduled to buy as much as $1.5 billion of Treasury Inflation Protected Securities due from July 2018 to February 2042 today, according to the Fed Bank of New York’s website.
The central bank’s policy committee plans to issue the minutes of its March 13 meeting today. It upgraded its assessment of the U.S. economy at the session.
U.S. payrolls climbed by more than 200,000 in March for a fourth month, economists said before the Labor Department reports the figure on April 6. Consumer spending in the U.S. rose in February by the most in seven months, the Commerce Department reported March 30, showing the biggest part of the economy is strengthening.
The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices over the life of the debt, widened one basis point to 2.38 percentage points. The average over the past decade is 2.14 percentage points.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
