BLBG:Treasury Yield Is 3 Basis Points From Low On Slowdown
Treasury 10-year yields were four basis points from a record low as slowing economic growth in China added to concern the global expansion is flagging, boosting demand for the safest securities.
U.S. notes headed for a third weekly advance after Moody’s Investors Service cut Italy’s debt rating, citing its deteriorating outlook. Treasuries were also boosted along with German bunds and U.K. gilts on speculation central banks around the world will take more action to cap borrowing costs. Thirty- year yields approached the least ever before U.S. reports today and next week forecast to show inflation is slowing.
“There are lower expectations for interest rates and this is supporting demand for Treasuries,” said Peter Schaffrik, head of European interest-rate strategy at Royal Bank of Canada in London. “Global monetary policy is underpinning the move. We’ve seen more easing across the board. Risk aversion is also playing a part, with the Italian downgrade.”
The 10-year note yielded 1.48 percent at 6:25 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent security due in May 2022 traded at 102 15/32. The yield, which has declined seven basis points this week, dropped to a record 1.4387 percent on June 1.
Treasuries are in demand as European leaders struggle to contain the debt crisis and data signal the U.S. and Chinese economies are weakening. Global growth will slow to 2.21 percent this year, from 2.9 percent in 2011, according to economist forecasts compiled by Bloomberg.
Test Record
U.S. 10-year yields may fall as low as 1.4 percent after breaking below the 1.55 percent level, analysts at Credit Suisse Group AG led by David Sneddon, head of technical-analysis research in London, wrote in a note to clients.
Moody’s cut Italy’s bond rating by two steps to Baa2, saying weaker growth and high unemployment were creating a risk the country will fail to meet its fiscal consolidation targets.
The Treasury 30-year yield declined one basis point to 2.56 percent, after dropping to a record 2.5089 percent on June 1. Germany’s 10-year yield fell two basis points to 1.23 percent, and similar-maturity gilt yields declined one basis point to 1.53 percent.
Ten-year Treasury “yields are headed toward 1 percent,” said Hideo Shimomura, who helps oversee the equivalent of $75.6 billion as chief fund investor at Mitsubishi UFJ Asset Management Co. in Tokyo. “Treasuries are the safe haven.”
U.S. government securities returned 3.1 percent in the past three months, according to indexes compiled by Bank of America Merrill Lynch. A gauge of bonds around the world including corporate debt and mortgage securities rose 2.4 percent.
Central Banks
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.
The Federal Reserve last month expanded its effort to bring down long-term borrowing costs by lengthening the maturity of the Treasuries it holds. The central bank plans to buy as much as $2 billion of due from February 2036 to May 2042 today as part of the plan, according to the Fed Bank of New York website.
China’s growth slowed for a sixth quarter, the government reported today. Singapore’s gross domestic product shrank in the three months through June, according to the Trade Ministry.
Losing Appeal
Tumbling yields are losing appeal among some investors.
“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 0.9483 percent today.
U.S. producer prices slid 0.5 percent in June from May, declining for a third month, according to a Bloomberg survey before the Labor Department report today. Another report will show consumer confidence was little changed in July, based on responses from economists.
Consumer prices were unchanged last month, after falling 0.3 percent in May, based on a separate survey before the report on July 17.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was 2.05 percentage points, versus 2.29 percentage points year ago.
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 in 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 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
