BLBG:Treasuries Snap Decline On Outlook For Slowing Growth
Treasuries snapped a decline from yesterday on speculation reports next week in Europe and the U.S. will show a global economic slowdown is deepening.
Yields on 10-year notes were five basis points from a record low as losses in Asian stocks boosted demand for relative safety of U.S. debt. Treasuries have returned 2.5 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 2.1 percent loss including reinvested dividends, data compiled by Bloomberg show.
“I’m keeping my bullish view on Treasuries,” said Masazumi Fukuoka, a senior dealer in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s largest publicly traded bank. “There’s ample money that has to find its way into U.S. debt as long as concerns over the European debt crisis and a slowdown in the U.S economy remain.”
Benchmark 10-year Treasury yields fell two basis points, or 0.02 percentage point, to 1.49 percent as of 6:50 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.75 percent security due in May 2022 climbed 1/8, or $1.25, to 102 11/32. The 10-year rates reached an all-time low of 1.4387 percent on June 1 and fell to as low as 1.44 percent this week.
Japan’s 10-year rate slid as much as 1/2 basis point to 0.735 percent, a level not seen since 2003. The MSCI Asia Pacific Index of regional shares lost 0.8 percent.
The extra yield investors get for buying 10-year treasuries instead of same-maturity bonds in Japan was 75 basis points, less than a third the average over the past decade.
No Improvement
An index of household sentiment in the euro region on July 23 is expected to show no improvement from last month, a Bloomberg News survey of economists showed. A gauge for manufacturing in the currency bloc July 24 will probably indicate contraction, based on poll responses.
U.S. reports on new-home sales July 25, orders for durable goods July 26 and economic growth July 27 are predicted to show gains are slowing, according to economists’ estimates.
Sales of existing U.S. homes unexpectedly dropped and manufacturing in the Philadelphia region contracted for a third month, data showed yesterday, indicating economic weakness is extending into the second half of the year.
Spain’s 10-year benchmark bond yields yesterday climbed above the 7 percent threshold for the first time since Prime Minister Mariano Rajoy unveiled his fourth austerity package last week. That’s the level that prompted bailouts for Greece, Ireland and Portugal.
Stimulus Speculation
Treasuries fell yesterday on speculation the Federal Reserve will counter the slowdown later this year. Chairman Ben S. Bernanke said this week the central bank is ready to take further action to boost the recovery if necessary.
The Fed has purchased $2.3 billion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing, seeking to cap borrowing costs and stimulate the economy. While policy makers refrained from introducing a third round of purchases at a meeting last month, Bernanke indicated in two days of testimony in Washington this week that it’s an option. The Federal Open Market Committee is scheduled to meet July 31 and Aug. 1.
The central bank plans to sell as much as $8 billion of Treasuries due from September 2014 to April 2015 today as part of another program known as Operation Twist. The Fed is swapping short-term Treasuries in its holdings for longer maturities to put downward pressure on long-term borrowing costs.
‘High Probability’
“Our economists think that QE is a high probability,” said Bin Gao, the head of interest-rate research for Asia and the Pacific at Bank of America Corp. in Hong Kong. “I don’t think yields can move a lot lower.” Ten-year rates will climb to 1.75 percent by year-end, Gao said.
Deutsche Bank AG forecasts the yield will advance to 2.25 percent by then as the economy starts to pick up. Improving household finances will lead to stronger consumption, Joseph A. LaVorgna, Carl J. Riccadonna and Brett Ryan, economists for the company in New York, wrote in a report yesterday.
Bank of America and Deutsche Bank are two of the 21 primary dealers that trade directly with the Fed.
The annualized pace of expansion probably slowed to 1.5 percent in the second quarter from 1.9 percent in the first, Bloomberg surveys of economists showed before the Commerce Department reports the figure on July 27.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
