BLBG:Treasuries Rise As Holdings Data Fuel Outlook For Demand
Treasuries rose, snapping a decline from yesterday, as a report on ownership of U.S. debt bolstered expectations demand will rise as investors seek a haven from slowing economic growth.
China, the biggest foreign creditor, raised holdings by 0.5 percent to $1.1696 trillion, the most in six months, Treasury Department data yesterday showed. A deepening debt crisis in Europe helped drive investor appetite for the relative safety of the securities, with the U.K.’s investment surging 19 percent, the most in nine months, to $161.1 billion. France’s increased 21 percent.
“European investors are becoming like those in Asia, always trying to buy Treasuries,” said Will Tseng, who invests in U.S. debt in Taipei for Shin Kong Life Insurance Co., which has the equivalent of $52.8 billion in assets. “I think yields will go down. I prefer to be long instead of being empty- handed.” A so-called long position is a bet an asset will increase in value.
Benchmark 10-year yields declined two basis points, or 0.02 percentage point, to 1.49 percent as of 6:56 a.m. in London, according to Bloomberg Bond Trader prices. The 1.75 percent security maturing in May 2022 rose 5/32, or $1.56 per $1,000 face amount, to 102 11/32.
Japan’s 10-year rate dropped one basis point to 0.76 percent, nearing this year’s low of 0.755 percent set July 13.
Japan’s Holdings
Japan, the U.S.’s second-largest lender, increased its holdings 1.4 percent to an all-time high of $1.1052 trillion, according to the Treasury Department report. Net foreign purchases of Treasuries increased 1 percent to a record $5.264 trillion in May, the data showed.
Treasuries are in demand as European governments struggle to find ways to pay their debts, the U.S. economy slows and Chinese output weakens. After overseas investors piled into Treasuries in May, the 10-year yield fell to a record 1.44 percent on June 1.
U.S. debt returned 2.8 percent in the three months ended yesterday, according to Bank of America Merrill Lynch data. The MSCI All-Country World Index (MXWD) of stocks handed investors a 4 percent loss including reinvested dividends, data compiled by Bloomberg 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, was 2.08 percentage points. The average over the past decade is 2.15 percentage points.
TIPS Auction
The Treasury Department is scheduled to sell $15 billion of 10-year TIPS tomorrow.
Government securities fell yesterday after Federal Reserve Chairman Ben S. Bernanke said policy makers are studying options to spur growth.
Housing starts rose 5.2 percent last month to a 745,000 annual pace, the strongest since October 2008, according to the median estimate among economists surveyed by Bloomberg News before the Commerce Department reports the figure today. Building permits, a proxy for future construction, dropped 2.4 percent to a 765,000 rate, the survey showed.
A report yesterday showed confidence among U.S. homebuilders climbed in July by the most since September 2002. The National Association of Home Builders/Wells Fargo index of sentiment increased by 6 points to 35 this month.
‘Bottomed Out’
“Yields will rise,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third- largest publicly traded bank by assets. “The economy will pick up. The housing market has bottomed out.”
The average 30-year, fixed mortgage rate declined to 3.56 percent last week, the lowest ever in data going back to 1972, according to McLean, Virginia-based Freddie Mac.
Bernanke said possible measures include further purchases of assets such as mortgage-backed securities, reducing the interest rate the Fed pays on reserves banks keep with the Fed, and altering its communications on the outlook for interest rates.
The central bank is scheduled to issue its Beige Book assessment of U.S. economic conditions today.
U.S. 10-year yields will increase to 1.93 percent by year- end, according to a Bloomberg survey of economists, with the most recent projections given the heaviest weightings. Shimazu predicts 2.5 percent.
The Fed remains the top holder of U.S. debt with $1.66 trillion.
Operation Twist
The central bank said on June 20 it would increase to $667 billion from $400 billion its program of extending the average maturity of the Treasuries on its balance sheet by selling short-term securities and buying an equal amount of longer- maturity Treasuries.
It is scheduled to buy as much as $5.5 billion of Treasuries maturing from August 2020 to May 2022 today as part of the plan, according to the Fed Bank of New York website.
Ten-year yields will fall to approach 1.25 percent, David Plank at Deutsche Bank AG in Sydney wrote in a report yesterday.
“Yields will continue to grind to new lows,” according to Deutsche Bank, which is one of the 21 primary dealers that trade directly with the Fed.
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
