BLBG:Treasuries Advance Before U.S. Reports Data on March CPI
Treasuries advanced for the first time in three days after China’s gross domestic product fell short of economists’ forecasts, increasing speculation global growth is slowing.
Benchmark 10-year notes headed for a fourth week of gains before U.S. data today that economists said will show the cost of living rose at a slower pace in March. Thirty-year Treasuries, among the most sensitive to inflation because of their long maturity, returned 2.7 percent this month as of yesterday, according to Bank of America Merrill Lynch. The broad market returned 0.9 percent, the data show.
“China’s GDP is the major driver” behind the gain in Treasuries, said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Market players are generally quite jittery about China, a major global growth engine, losing steam, so even minor downside surprises can trigger price shifts.”
The 10-year yield declined four basis points, or 0.04 percentage point, to 2.01 percent at 10:14 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2022 advanced 13/32, or $4.06 per $1,000 face amount, to 99 30/32.
The yield dropped four basis points in the five days. The four weeks of price gains is the longest stretch since August, according to data compiled by Bloomberg.
The 10-year yield fell through its 100-day moving average of about 2.02 percent today, according to data compiled by Bloomberg.
China Growth
China’s gross domestic product expanded 8.1 percent in the first quarter from a year earlier, the least in almost three years, the National Bureau of Statistics said today. The median estimate in a Bloomberg News survey was for 8.4 percent. Some strategists say slowing growth will increase pressure on central banks around the world to do more to fuel the expansion.
“More monetary easing will be needed to facilitate a controlled deceleration,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA and the only analyst surveyed who correctly predicted first-quarter growth.
The yen has strengthened against the dollar this week even amid speculation the Bank of Japan will add to monetary easing. The Federal Reserve bought $2.3 trillion of bonds from 2008 to 2011 in two rounds of quantitative easing, known as QE1 and QE2.
“The rally has further to go,” said Hiromasa Nakamura, a Treasury investor in Tokyo at Mizuho Asset Management Co., which has the equivalent of $40.7 billion in assets. “They will have to do QE3 due to the fragile economic situation.”
Fed Buying
The Fed is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to February 2042 today, according to the New York Fed’s website. The central bank is replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.
Policy makers have said economic conditions will probably lead them to keep the benchmark interest rate at almost zero through at least late 2014.
Bill Gross, Jeffrey Gundlach and Dan Fuss, whose companies collectively oversee about $1.5 trillion, expect the Fed to conduct a third round of bond purchases as signs of strength in the U.S. economy fade and Europe’s debt crisis returns.
The managers at Pacific Investment Management Co. and DoubleLine Capital LP favor mortgage debt, while Loomis Sayles & Co. buys corporate bonds.
While U.S. gross domestic product grew at a 3 percent pace in the last three months of 2011, it will slow to 2.3 percent this year, according to the median estimate of 90 economists surveyed by Bloomberg. Surging bond yields in Spain are fueling concern the nation will need a European bailout.
Consumer Prices
U.S. consumer prices rose 0.3 percent in March, after advancing 0.4 percent in February, according to the median forecast in a Bloomberg News survey of economists before the Labor Department report.
Consumer prices advanced 2.9 percent in February from the year before, meaning 10-year notes yield negative 89 basis points after subtracting costs in the economy. The so-called real yield has been negative for almost a year. Today’s report will show annual consumer price gains slowed to 2.7 percent, according to the Bloomberg survey.
Consumer confidence matched a 14-month high, a separate report today will show, based on the responses from economists.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.3 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.
