BLBG:Treasuries Fall as Economists Predict Home Sales Rose in March
Treasuries fell, led by longer- maturity bonds, before a government report today forecast to show U.S. home sales increased in March, adding to signs the world’s largest economy is recovering.
The 10-year note yielded 2 percent after staying within seven basis points of that level for almost two weeks. Fidelity Investments said it has been favoring high-yield debt and other bonds that pay more interest than government securities. The U.S. plans to sell $16 billion of five-year Treasury Inflation Protected Securities today. The government is also scheduled to announce the amounts for two-, five- and seven-year notes it will auction next week.
“Ten-year yields have been range bound close to 2 percent,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “Treasuries are likely to remain in a narrow range as the market waits for today’s U.S. data. Positive economic data may be the catalyst needed to push yields higher.”
The 10-year yield rose two basis points, or 0.02 percentage point, at 6:25 a.m. New York time, according to Bloomberg Bond Trader prices. The yield has ranged from 1.94 percent to 2.07 percent since April 7. The 2 percent note due February 2022 fell 5/32, or $1.56 per $1,000-face amount, to 100 1/32. The 30-year yield climbed two basis points to 3.14 percent.
Home Sales
Sales of previously owned U.S. homes climbed 0.7 percent from February to a 4.62 million annual rate, according to economists surveyed by Bloomberg News. Separate reports today are forecast to show manufacturing in the Philadelphia region expanded, and claims for initial jobless benefits dropped.
Home starts slowed to a five-month low in March, the Commerce Department said April 17.
“Yields that are less than 2 percent are expensive,” said Youngsung Kim, head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor. “There’s some economic data showing the economy is slowing down. I think it’s just temporary. The U.S. economy isn’t bad.”
Kim said he is avoiding U.S. government debt in favor of South Korean bonds.
Fidelity, the Boston-based fund company that oversees $1.61 trillion, favors high-yield securities, floating-rate loans, real estate bonds and emerging-market debt, according to a report yesterday on the company’s website.
‘Strong’ Fundamentals
“These assets continued to be well supported by strong economic fundamentals, low default rates, and strong flows from investors seeking higher yields than those offered by U.S. government bonds,” the company said. Fidelity has also “modestly reduced” these holdings following a recent rally.
Treasuries are little changed this year as of yesterday, while U.S. high-yield bonds have gained 5.2 percent, according to Bank of America Merrill Lynch indexes. TIPS rose 2.5 percent, the data show.
Treasuries have fluctuated between gains and losses each day this week. They rose yesterday as concern about Europe’s debt crisis boosted demand for the safest assets.
Spain and France sold bonds today as Spanish Prime Minister Mariano Rajoy’s struggle to meet deficit targets and the French presidential elections drive up yields in the euro area.
Spain auctioned 2.54 billion euros of two-year notes and 10-year bonds, compared with a maximum target of 2.5 billion euros ($3.28 billion). The nation sold its 10-year benchmark bond at an average yield of 5.743 percent, compared with 5.403 percent when it last sold them in January.
Concerns ‘Overdone’
Concerns about a slowdown in growth are “overdone,” according to UBS AG, one of the 21 primary dealers that trade directly with the Federal Reserve.
Ten-year Treasury yields will rise to 2.70 percent by year- end, economists Andrew Cates in Singapore and Larry Hatheway and Sophie Constable in London, wrote in a report today.
The Fed plans to buy as much as $2 billion of Treasuries due from August 2022 to February 2031 today as part of a plan to replace $400 billion of shorter-term debt in its holdings with longer maturities to keep borrowing costs down, according to the New York Fed’s website.
Five-year TIPS yielded negative 1.3 percent, compared with negative 0.877 percent at the previous auction of the securities on Dec. 15.
Investors bid for 3 times the amount offered four months ago, compared with an average of 2.63 for the past 10 auctions. Indirect bidders, the category of investors that includes foreign central banks, bought 48.8 percent.
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, has widened to 2.27 percentage points from 1.95 percentage points at the end of 2011.
The U.S. auction plan will consist of $35 billion of two- year notes on April 24, the same amount of five-year debt the following day and $29 billion of seven-year debt on April 26, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
