BLBG:Treasury Yield Is 4 Basis Points From Low On Slowdown
Treasury yields were four basis points from the least ever as slowing economic growth in China and Singapore added to concern the global expansion is flagging, driving demand for the relative safety of U.S. debt.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said investments that carry risk are “headed down,” in a Twitter post yesterday. Moody’s Investors Service cut Italy’s debt rating. U.S. government reports today and next week will show inflation is slowing, according to Bloomberg News surveys of economists.
Benchmark 10-year notes yielded 1.48 percent as of 6:45 a.m. in London, according to Bloomberg Bond Trader prices. The all-time low was 1.44 percent on June 1. The 1.75 percent security maturing in May 2022 changed hands at 102 1/2 today.
“Yields are headed toward 1 percent,” said Hideo Shimomura, who helps oversee the equivalent of $75.6 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., part of Japan’s largest publicly traded bank. “Treasuries are the safe haven.”
U.S. government securities returned 3.1 percent in the past three months as of yesterday, according to Bank of America Merrill Lynch data. An index of bonds around the world that includes corporate debt and mortgage securities gained 2.4 percent.
The MSCI All-Country World Index dropped 5.6 percent including dividends.
Holdings Unchanged
Pimco’s Gross kept the proportion of U.S. government and Treasury debt in his $263 billion Total Return Fund unchanged at 35 percent of assets last month, according to a report July 11 on the company’s website. Mortgages were at 52 percent for a second month.
Treasuries are in demand as European governments seek ways to pay their debts, the U.S. economy is slowing and China is weakening. Global growth will be 2.21 percent this year, versus 2.9 percent in 2011, a Bloomberg survey of economists showed.
Central banks around the world are responding.
South Korea reduced interest rates yesterday, and Brazil cut the day before.
The European Central Bank and People’s Bank of China trimmed their benchmark borrowing costs last week, while the Bank of England increased its asset-purchase program.
In June, the Federal Reserve expanded its effort to bring down long-term borrowing costs by lengthening the maturity of the Treasuries it holds. It plans to buy as much as $2 billion of securities due from February 2036 to May 2042 today as part of the plan, according to the Fed Bank of New York website.
German Yields
Demand for the safest assets pushed German two-year yields to negative four basis points yesterday, the least ever. A basis point is 0.01 percentage point.
Japan’s 10-year rate was as low as 0.755 percent today, a level not seen since June 2003.
Australia’s one-year yield slid to a record 2.28 percent today. Singapore’s 10-year rate dropped to 1.306 percent today, the lowest since 1998.
China’s growth slowed for a sixth quarter, the government reported. Singapore’s gross domestic product shrank in the three months through June, according to the Trade Ministry.
Italy Rating
Moody’s cut Italy’s government bond rating by two steps to Baa2, according to a statement issued in Frankfurt today.
Tumbling rates are losing appeal among some market participants.
“Yields are too low to buy here,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “Bonds have already priced in weakness in the U.S. economy and a worst case for the European debt situation.”
The term premium, a model created by the Fed that includes expectations for interest rates, growth and inflation, showed Treasuries were at the most expensive level ever this week. The gauge fell to a record negative 0.9617 percent on July 10. It was negative 0.9457 percent today.
U.S. producer prices slid 0.5 percent in June from May, declining for a third month, according to the median estimate of economists surveyed by Bloomberg before the Labor Department reports the figure today. Another report will show consumer confidence was little changed in July from June, based on responses from economists.
Consumer prices were probably unchanged last month, after falling 0.3 percent in May, based on a separate survey before the report July 17.
TIPS Spread
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, was 2.05 percentage points, versus the average over the past decade of 2.15 percentage points.
The five-year, five-year forward break-even rate, a measure of inflation expectations that the Fed uses to guide monetary policy, was 2.43 percentage points as of July 10. The figure has dropped from 2012’s high of 2.78 percentage points set in March.
“This month yields will probably reach a record low,” said Hiromasa Nakamura, who invests in Treasuries from Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $41.5 billion and is part of Japan’s third-biggest bank. “The inflation numbers continue to decline.”
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
