BLBG:Treasuries Snap 3-Day Advance Before $32 Billion Auction
Treasuries snapped three days of gains before a $32 billion sale of three-year notes today, the first of three auctions this week.
Ten-year note yields were within eight basis points of a record low as Europe’s financial turmoil and signs of slowing global growth bolstered demand for the safest assets. High-grade company bonds and agency mortgage-backed securities such as those issued by Fannie Mae offer better returns than government bonds, according to Boston-based Columbia Management Investment Advisers LLC, which oversees $344 billion.
“There will be some concession in the price as we head toward the auction,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “The sales will go well. There’s a big rush for safe havens in the current environment and there’s demand for Treasuries from people who don’t want to hold European assets.”
Ten-year note yields rose 0.1 basis point, or 0.01 percentage point, to 1.52 percent at 9:44 a.m. London time, according to Bloomberg Bond Trader data. The all-time low was 1.44 percent set June 1. Yields have fallen 12 basis points in the past three days. The 1.75 percent security due May 2022, fell 2/32, or 63 cents per $1,000 face amount, to 102 3/32.
The Treasury Department is selling $32 billion of three- year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds on July 12.
Three-year notes yielded 0.354 percent in pre-auction trading, versus 0.387 percent the last time the notes were sold on June 12.
Sale Bids
Investors submitted orders for 3.53 times the amount of available debt last month. The average over for the past 10 sales is 3.45.
Direct bidders, non-primary dealers buying for their own accounts, purchased 12 percent of the notes, the most since November. Indirect bidders, which include foreign central banks, bought 27 percent of the securities, the least since May 2007.
“I’m going to refrain from purchasing for now,” said Hajime Nagata, who helps oversee the equivalent of $129.6 billion as an investor in Tokyo at Diam Co. “Yields are getting close to a historic low. If yields pick up, we will try to add. The U.S. economy is getting weaker.”
A U.S. report on July 6 showed the economy added 80,000 jobs in June, versus 100,000 projected by a Bloomberg News survey of economists.
Fed TIPS Purchases
The central bank is scheduled to buy as much as $1.5 billion of Treasury Inflation Protected Securities due from July 2018 to February 2042 today, according to the Fed Bank of New York website, part of its plan to extend the maturity of its holdings.
Money managers have been willing to buy because of forecasts that inflation will stay in check, which would make it easier for the Fed to increase its bond purchases to fuel the economy.
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 narrowed to 2.07 percentage points from this year’s high of 2.45 percent on March 20. The average over the past decade is 2.15 percentage points.
Labor Department figures due July 13 will show the U.S. producer price index slid for a third month in June with a 0.4 percent decline, according to the median estimate of economists surveyed by Bloomberg. Consumer prices were unchanged, after falling 0.3 percent in May, a separate survey of economists forecast before the July 17 report.
“I can’t see inflation picking up in the short term,” said Ali Jalai, who trades U.S. debt in Singapore at Scotiabank, a unit of Bank of Nova Scotia, one of the 21 primary dealers authorized to deal with the Fed. “The economy is so weak.”
Jalai said corporate debt is more attractive because Treasury rates are “too low,” echoing Columbia.
“Treasury yields have reached a level at which that asset class is losing its ability to act as a shock absorber in a portfolio,” Gene Tannuzzo, a portfolio manager at Columbia, wrote in a report on the company’s website yesterday.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
