BLBG:Treasuries Rise as Stocks Drop Revives Demand for Safety
Treasuries rose, rebounding from yesterday’s biggest slide in almost three weeks, as a decline in stocks around the world drove demand for the relative safety of government debt.
U.S. securities dropped yesterday after minutes from the Federal Reserve’s latest meeting showed policy makers refrained from arranging additional stimulus measures. The report wasn’t enough to allay concern that expiring tax benefits, $1 trillion of mandatory federal spending cuts and $100-a-barrel oil will erode consumer spending.
“Even though the Fed is not going to do another round of quantitative easing, that doesn’t mean we’re going to start a long bear market for bonds,” said Peter Jolly, Sydney-based head of market research at National Australia Bank Ltd. (NAB), the South Pacific nation’s biggest lender by assets. “For yields to go much higher, we’re going to need a clear idea that the Fed is going to tighten policy, and that’s still a fair way off.”
Ten-year yields fell two basis points, or 0.02 percentage point, to 2.28 percent as of 2:25 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2022 rose 6/32, or $1.88 per $1,000 face amount, to 97 17/32.
The yield increased 12 basis points yesterday, the most since March 14.
Stocks Dropping
The MSCI All Country World Index of stocks declined 0.5 percent, dropping for a second day, driving demand for the relative safety of government debt.
Japan’s 10-year rate was little changed at 1.035 percent.
Treasury bears say growth will push yields higher.
The Institute for Supply Management’s non-manufacturing index was probably 56.8 in March from 57.3 in February, according to the median estimate in a Bloomberg News survey of 68 economists. The figure would match January’s as the second- strongest level in a year. Readings greater than 50 indicate growth.
Figures from ADP Employer Services due today may show U.S. employment increased by 206,000 last month, according to a Bloomberg survey. That compares with a gain of 216,000 in February, the biggest in two months.
“There is a risk Treasury yields will rise because the economy is improving,” said Tsutomu Komiya, who helps oversee the equivalent of $111 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage. “The economy is improving. It doesn’t require additional monetary easing.”
Yield Outlook
Benchmark 10-year yields may rise to 2.4 percent after climbing past their 200-day moving average yesterday, according to CIBC World Markets Inc., a unit of Canada’s fifth-largest lender. The current 200-day average is 2.16 percent.
Ten-year yields will be 2.25 percent by June 30, according to the average forecast in a Bloomberg survey of financial companies, with the most recent projections given the heaviest weightings. Daiwa’s Komiya predicts 2.5 percent.
Treasuries fell yesterday as the minutes from the March 13 Fed meeting dashed speculation policy makers would hint at more asset purchases.
The central bank bought $2.3 trillion of securities to spur the economy in two rounds of quantitative easing from December 2008 to June 2011.
Getting Traction
Fed Bank of Atlanta President Dennis Lockhart said he sees no need for further easing. Lockhart spoke yesterday on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays.
“The economy is in a situation where it can be interpreted as half full or half empty,” Lockhart said. “I’m not concerned about a double-dip reaction. We have an economy that’s growing at a moderate pace and is getting more traction.”
The Fed on March 13 reiterated its statement that economic conditions would probably warrant “exceptionally low” interest rates at least through late 2014. It has held its target rate for the so-called federal funds rate that banks charge each other on overnight loans, to a range of zero to 0.25 percent since December 2008.
Policy makers also discussed the conditions under which they’d alter their 2014 rate plan. The commitment is conditional on the performance of the economy “and members concurred that the date given in the statement would be subject to revision in response to significant changes in the economic outlook,” the minutes said.
Thirty-day federal funds futures contracts for delivery in March 2014 yielded 0.53 percent, indicating investors expect the bank to have raised borrowing costs by then. The contract settles at the average overnight fed funds rate for the delivery month.
Europe Concern
Treasuries also gained today on concern Europe’s sovereign- debt crisis will worsen.
Bill Gross, who runs the world’s biggest bond fund, said Portugal is headed for a debt “haircut.”
Gross, co-chief investment officer and founder of Newport Beach, California-based Pacific Investment Management Co., wrote on Twitter yesterday that “a ‘voluntary exchange’ by private market seems inevitable.”
Portugal and Spain are scheduled to sell debt today.
The European Central Bank will probably hold its main interest rate at 1 percent at a meeting today, a Bloomberg survey of economists shows.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
