BLBG:Treasuries Snap Decline On Outlook For Slowing Growth
Treasuries rose, with 10-year yields falling to within four basis points of a record low, on speculation reports next week in Europe and the U.S. will add to signs the global economy is slowing.
Two-year notes headed for a fourth weekly gain as a decline in Asian and European stocks boosted demand for the relative safety of U.S. government debt. Treasuries 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 in the same period, including reinvested dividends.
“Treasuries are still the ultimate safe-haven asset,” said Robin Marshall, a director of fixed income in London at Smith & Williamson Investment Management, which oversees the equivalent of $19 billion. “Given the gloomy economic outlook, which may mean a long period of low growth, the current yields are not bad for risk-free government bonds.”
The benchmark 10-year Treasury yield fell four basis points, or 0.04 percentage point, to 1.47 percent at 7:54 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2022 climbed 11/32, or $3.44 per $1,000-face amount, to 102 17/32. The yield dropped to a record 1.4387 percent on June 1.
The two-year rate was little changed at 0.21 percent after falling to 1.2096 percent, the lowest level since Jan. 30. The yield declined three basis points this week.
Confidence Declines
An index (SXXP) of consumer confidence in the euro region will fall to minus 20 for July from minus 19.8 in June, according to a Bloomberg News survey before the July 23 report. A gauge of manufacturing in the currency bloc will indicate contraction, based on a separate survey ahead of the data on July 24.
U.S. data on new-home sales on July 25, orders for durable goods the following day, and economic growth on July 27 are all predicted to show the expansion is slowing, according to economists’ estimates.
Sales of existing U.S. homes unexpectedly dropped and manufacturing in the Philadelphia region contracted for a third month, figures showed yesterday.
German 10-year bunds also rose today, extending a third weekly gain, as investors sought Europe’s safest securities.
The extra yield investors get for buying 10-year Treasuries instead of similar-maturity bunds widened six basis points this week to 28 basis points. The average over the past year is 14 basis points.
Spanish Yields
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.
The MSCI Asia Pacific Index of shares dropped 0.7 percent, and the Stoxx Europe 600 Index fell 0.6 percent.
Treasuries declined yesterday on speculation the Federal Reserve will take steps to counter the growth slowdown. Chairman Ben S. Bernanke said this week the central bank is ready to take further action to boost the recovery if necessary.
The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of 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 next meets on July 31 and Aug. 1.
Operation Twist
The central bank plans to sell as much as $8 billion of Treasuries due from September 2014 to April 2015 today as part of a 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.
“Our economists think that QE is a high probability,” said Bin Gao, 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 U.S. growth 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 reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
