BLBG:Treasuries Gain On Asia Stock Declines, Euro Debt Concern
Treasuries rose, pushing yields to within five basis points of the record low, as declines in Asian stocks and Europe’s fiscal crisis increased demand for the relative safety of U.S. debt.
Government securities headed for a second monthly gain as investors sought a haven amid signs of slowing economic growth in Europe and the U.S. They returned 2.6 percent from the end of March through yesterday, Bank of America Merrill Lynch data show. Investors tracking the MSCI All-Country World Index of stocks lost 8.2 percent. Slowing U.S. inflation will lead the Federal Reserve to do more to spur the economy, said Ward McCarthy, the chief financial economist at Jefferies & Co.
“More and more people are reducing risk,” said Kei Katayama, who invests in U.S. government debt in Tokyo at Daiwa SB Investments Ltd., which has the equivalent of $62.4 billion and is a unit of Japan’s second-largest brokerage. “There’s a forced flight to quality.”
Benchmark 10-year yields declined two basis points, or 0.02 percentage point, to 1.72 percent as of 6:45 a.m. in London, according to Bloomberg Bond Trader data. The all-time low was 1.67 percent set Sept. 23. The 1.75 percent security due in May 2022 advanced 6/32, or $1.88 per $1,000 face amount, to 100 7/32.
Japan’s 10-year rate slid 1/2 basis point to 0.845 percent today. It was as low as 0.815 percent on May 18, a level not seen since 2003.
The MSCI Asia Pacific Index (MXAP) of stocks dropped 1 percent, snapping a two-day gain.
Bund Yields
German bunds have also benefited from the flight to quality, with two-year yields as low as three basis points yesterday. U.S. two-year notes yielded 26 basis points more than same-maturity securities in Germany yesterday, the biggest difference in almost two years.
A report from the National Association of Realtors today will probably show pending home sales in the U.S. were unchanged in April after rising in the first quarter, a Bloomberg News survey of economists showed. The figure is a leading indicator of conditions in the real estate market because it tracks contract signings.
Confidence among American consumers unexpectedly fell in May to the lowest level in four months, the Conference Board reported yesterday. Reports this week may show expansion in gross domestic product was slower than the government estimated a month ago, while jobs growth quickened, according to Bloomberg surveys.
Recapitalization Plan Criticized
In Europe, Spain’s borrowing costs climbed and the country’s central bank chief, Miguel Angel Fernandez Ordonez, resigned a month early amid criticism over the May 9 nationalization of Bankia group. The yield on 10-year Spanish debt rose to the highest level since November yesterday, approaching the 7 percent mark that heralded bailouts in Greece, Ireland and Portugal.
The Federal Reserve plans to buy as much as $5.25 billion of Treasuries due from August 2020 to May 2022 today, according to the Fed Bank of New York’s website. The purchases are part of the bank’s program to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to support the economy by keeping down borrowing costs.
The U.S. central bank bought $2.3 trillion of bonds from December 2008 to June 2011 to boost the economy. The Fed is scheduled to hold a policy meeting next month.
‘Disinflationary’ Environment
“We’re in a pretty significant disinflationary trend,” Jefferies’s McCarthy said yesterday on Bloomberg Television’s “In the Loop” with Betty Liu. “If you continue to see sluggish data and you continue to see disinflation, then I think the Fed will really will have no choice but to pursue an accommodative stance.” Jefferies is one of the 21 primary dealers that trade directly with the central bank.
U.S. consumer prices rose 2.3 percent in April from a year earlier, slowing from 3.9 percent in September, Labor Department figures show.
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, has narrowed to 2.11 percent from this year’s high of 2.45 percentage points in March. The average over the past decade is 2.15 percentage points.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
