BLBG:Treasuries Fall On EU Plan For Loans To Spanish Banks
Treasuries fell the most in a week after euro-area leaders eased terms on loans to Spanish banks, taking a step to curb the region’s debt crisis.
Demand for the relative safety of U.S. securities waned as Asia stocks gained after officials meeting in Brussels agreed to drop the condition that emergency loans to the banks carry “preferred” status, giving up their priority over other creditors. Treasuries returned 3.4 percent this quarter, according to Bank of America Merrill Lynch indexes, as investors snapped up the securities as a haven while European governments struggled to find lenders.
“Private investors have a relatively higher priority now,” said Bin Gao, the head of interest-rate research for Asia and the Pacific at Bank of America Merrill Lynch in Hong Kong. “There will be more private capital” flowing to Europe, he said. “This is a ‘risk-on’ development. You buy stocks.”
Benchmark 10-year yields increased five basis points, or 0.05 percentage point, to 1.63 percent as of 6:54 a.m. in London, according to Bloomberg Bond Trader data. The 1.75 percent note due in May 2022 fell 14/32, or $4.38 per $1,000 face amount, to 101 3/32.
Treasuries returned 0.02 percent this month as of yesterday, according to the Bank of America indexes. They are up 2.1 percent for 2012, versus 9.8 percent for all of 2011, the data show.
Japan’s 10-year rate increased 1 1/2 basis points today to 0.83 percent. The nation’s government bonds returned 0.04 percent in June and 1.4 percent this year.
The MSCI Asia Pacific Index (MXAP) of stocks rallied 2.2 percent, set for the biggest gain this year.
Reducing Risk
Europe’s leaders also discussed ways to reduce the risk premiums on Italian and Spanish bonds, which have stoked concern among investors and global policy makers that the region’s currency union threatened to break apart.
Ebbing U.S. consumer spending will support Treasuries, said Hiromasa Nakamura, who helps oversee the equivalent of $41.5 billion as an investor at Mizuho Asset Management Co., which is in Tokyo and is a unit of Japan’s third-largest publicly traded bank.
“The rally will continue,” Nakamura said. “Due to the fragile employment situation, consumer spending will slow.”
Ten-year yields will fall to 1.2 percent by year-end, he said, surpassing the record low of 1.44 percent set June 1.
U.S. Spending
U.S. household purchases, which account for about 70 percent of the economy, were probably unchanged in May after a 0.3 percent gain in April, according to the median estimate of 75 economists surveyed by Bloomberg News before the Commerce Department reports the figure today.
A separate report is likely to show consumer sentiment dropped to a six-month low in June, another survey shows. U.S. employment gains slowed for a fourth month in May, according to a Labor Department report June 1.
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 2.07 percentage points from this year’s high of 2.45 percentage points in March. The average over the past decade is 2.19 percentage points.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said yesterday that economies and their financial markets take decades to normalize after the havoc of a fiscal crisis, making U.S. securities the safest bet.
Uncle Sam
An authentic debt crisis, which the world is experiencing, can only be cured by default or printing more money, Gross said in his monthly investment outlook on the Newport Beach, California-based company’s website yesterday. U.S. Treasuries are the cleanest “dirty shirts” for investors, Gross wrote.
“Don’t underweight Uncle Sam in a debt crisis,” he wrote. “Money seeking a safe haven will find it in America’s deep and liquid, almost Aaa rated, bond and equity markets.”
The U.S. has triple A debt rankings from Moody’s Investors Service and Fitch Ratings, the highest grades, and it is rated one step lower at AA+ by Standard & Poor’s.
Gross raised the proportion of U.S. government and Treasury debt in the $261 billion Total Return Fund (PTTRX) to 35 percent in May from 31 percent in April. Mortgages remained the largest holding at 52 percent, according to data on the website.
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
