BLBG:Treasuries Rise as Europe Debt Crisis Spurs Haven Demand
Treasuries gained, snapping a loss from yesterday, on speculation Europe’s debt crisis and slowing U.S. economic growth will lead the Federal Reserve to reiterate its low-rate pledge after a meeting today.
Ten-year yields were within 30 basis points of a record low as economists said government reports this week will show orders for durable goods fell and the pace of economic expansion declined. Fed Chairman Ben S. Bernanke is scheduled to speak today after a two-day central bank meeting. A $35 billion five- year auction by the Treasury Department today was poised to draw a record low rate.
“There is no reason to sell Treasuries at the moment,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “There is still concern about the European debt crisis, combined with political risks that may deter austerity efforts. Yields will stay at low levels.”
The yield on the benchmark 10-year note fell one basis point, or 0.01 percentage point, to 1.97 percent at 6:53 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 gained 2/32, or 63 cents per $1,000 face amount, to 100 10/32.
Japan’s 10-year rate slid one basis point to 0.92 percent. This year’s low was 0.91 percent set earlier this week.
Yields Peaked
U.S. benchmark 10-year yields climbed to this year’s high of 2.4 percent on March 20 after the central bank at its last meeting March 13 raised its assessment of the economy. They have declined since then to within 30 basis points of the record low as some indicators showed a slowdown and Europe’s fiscal crisis drove demand for the relative safety of U.S. debt.
Yields on benchmark 10-year bonds fell today after the collapse of the Dutch government and as incumbent Nicolas Sarkozy faces a run-off ballot in the French presidential election.
Socialist candidate Francois Hollande, who has proposed increasing state spending by 20 billion euros ($26 billion) over five years, is the front-runner after beating Sarkozy in the first round on April 22. In the Netherlands, Prime Minister Mark Rutte tendered his Cabinet’s resignation this week after failing to garner support for proposed spending cuts.
U.S. durable goods orders probably declined 1.7 percent in March from the previous month when they increased 2.2 percent, according to median estimate of economists surveyed by Bloomberg News before the Commerce Department releases its figures today. Another report on April 27 may show the U.S. economy grew at a 2.5 percent annual rate in the first quarter, according to economists in a separate Bloomberg poll.
Bernanke to Speak
Fed Chairman Bernanke, scheduled to speak after a two-day policy meeting, said March 26 that continued accommodative monetary policy is needed to bring down unemployment. U.S. central bankers bought $2.3 trillion of bonds in two rounds of so-called quantitative easing between December 2008 and June 2011. They’ve also said they will probably keep their target for overnight lending between banks at almost zero at least until late 2014.
“This week’s report is likely to show U.S. growth wasn’t as strong as the third quarter last year,” said CIBC’s Oh’e. “The Fed will probably reiterate rates will stay low until 2014 at the meeting today.”
The central bank is also replacing $400 billion of shorter- term debt in its holdings with longer maturities to hold down borrowing costs.
Wider Spread
Investors get 2.27 percentage points of extra yield by buying 30-year bonds instead of five-year notes. The average spread over the past decade is 1.47 percentage points.
The Fed probably won’t deliver any new easing plans, George Goncalves and Ankit Sahni, strategists at Nomura Securities International Inc., wrote in a report yesterday. Nomura is one of the 21 primary dealers that trade directly with the central bank.
Investors forecasting bond gains are in the minority.
Ten-year yields will increase to 2.54 percent by year-end, according to the average forecast in a Bloomberg survey of financial companies with the most recent projections given the heaviest weightings.
“I expect yields to go up,” said Yoshiyuki Suzuki, the Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co., which has the equivalent of $67.5 billion in assets. “The U.S. economy is still good. QE3 is not necessary.”
Ten-year yields need to rise to 2.5 percent or higher to get Fukoku to buy, Suzuki said.
Debt Auction
The five-year notes being sold today yielded 0.84 percent in pre-auction trading, versus 1.04 percent at the previous offering on March 28. The record low auction yield was 0.88 percent in December.
Investors bid for 2.85 times the amount offered in March, versus the average of 2.88 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 41.9 percent of the securities, compared with the 10-sale average of 43.5 percent.
U.S. five-year notes have returned 0.5 percent this year, while the broad market is little changed, according to Bank of America Merrill Lynch indexes.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
