BLBG:Treasury Yield Holds Near Record Low Before Fed Meeting
Treasury 10-year yields were 29 basis points from the record low on speculation Federal Reserve Chairman Ben S. Bernanke will say this week that more needs to be done to help the U.S. economy.
Yields have fallen for five weeks, the longest run since June, as some indicators showed a slowing in the economy and Europe’s fiscal crisis drove demand for the relative safety of U.S. debt. The Fed’s policy setting committee is scheduled to meet tomorrow and the next day. It will issue a statement and Bernanke is scheduled to give a press conference on April 25. He said last month that unemployment is too high.
“Bernanke will emphasize the weakness of the labor market,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “That’s positive for Treasuries.” The Fed chairman will use his comments to prepare investors for easing from the central bank later in the year, Shimazu said.
Benchmark 10-year yields were unchanged from last week at 1.96 percent as of 2:06 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 changed hands at 100 10/32. The record low was 1.67 percent set Sept. 23. A basis point is 0.01 percentage point.
Japan’s 10-year rate declined as much as 1.5 basis points to 0.915 percent, the lowest level in 17 months.
U.S. employment growth slowed to 120,000 in March from 240,000 in February, the Labor Department reported April 6, fueling the debate over whether the Fed needs to start a new program of debt purchases to spur growth.
U.S. central bankers bought $2.3 trillion of bonds in two rounds of so-called quantitative easing known as QE1 and QE2. They’ve also said they will probably keep their target for overnight lending between banks at almost zero at least until late 2014.
All Options Available
Bernanke said March 27 on ABC News that the Fed is open to further easing. “We don’t take any options off the table,” he said.
“The chairman will keep the door open to further policy action but will stop short of pushing this idea too hard,” according to an April 20 report by RBC Capital Markets LLC, one of the 21 primary dealers that trade directly with the Fed.
First-quarter gross domestic product, scheduled to be reported April 27, will be “fairly decent,” according to the report by Tom Porcelli, Jacob Oubina and Dan Grubert in New York.
GDP probably expanded at a 2.5 percent annual rate, according to the median forecast of 72 economists surveyed by Bloomberg News before the Commerce Department report. It advanced at a 3 percent pace in the previous three-month period.
Higher Yield
Investors betting on signs of easing from the central bank this week may be disappointed, according to Bank of America Merrill Lynch, another primary dealer. Ten-year yields will rise toward 2.25 percent, strategists led by Priya Misra, the New York-based head of U.S. interest-rate strategy, wrote in a report. “We expect the Fed to announce QE3 this September,” they wrote.
The Fed is also replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs. It is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to February 2042 today as part of the program, according to the New York Fed’s website.
The U.S. plans to sell $35 billion of two-year notes tomorrow, the same amount of five-year debt the following day and $29 billion of seven-year debt on April 26.
The decline in yields has narrowed the difference between the upper end of the Fed’s rate target and seven-year rates to 1.11 percentage points, the least in almost seven weeks. The central bank has targeted a range of zero to 0.25 percent for its benchmark since December 2008.
French Election
Politics may dominate trading in the euro area this week. France held the first round of its two-part presidential election, with the second round scheduled for May 6. A defeat for the incumbent, Nicolas Sarkozy, would mirror the fate of governments in Ireland, Portugal, Greece, Italy and Spain that have been ousted since the onset of crisis in the 17-nation currency group.
Lacy Hunt, whose bond fund has beaten 99 percent of its peers during the past five years by buying the longest maturity Treasuries, says 30-year government securities are the world’s best debt investment.
“The long end of the Treasury curve offers the greatest value,” Hunt, the chief economist at Austin, Texas-based Hoisington Investment Management, which oversees more than $4.5 billion, said April 17 in a telephone interview. “The risk of deflation is greater than the risk of inflation over the next several years,” said Hunt, whose firm’s Wasatch-Hoisington U.S. Treasury Fund (WHOSX) has returned 76 percent since April 2007.
While the U.S. economy is expanding, it isn’t sparking faster inflation, helping push bond yields and government borrowing costs back toward record lows.
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
