BLBG:Treasury Yields Rise To Three-Month High Before Housing Report
Treasury 10-year yields rose to the highest in more than three months before a report economists said will show new-home construction in the U.S. was close to the most since 2008.
Treasuries fell for the fourth day after data on jobs, consumption and factory production this month all pointed to improvement in the U.S. economy, curbing demand for the relative safety of U.S. sovereign debt. Stocks rose.
“The U.S. economy seems to be on an even keel when compared to the euro area and as a result the biggest sell-off in core government bonds has been seen in Treasuries,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets in Edinburgh. “The housing market is one of the signs of strength in the economy and housing starts should show the residential market is providing a positive contribution to growth in the third quarter.”
The 10-year rate was little changed at 1.81 percent at 10:54 a.m. London time, according to Bloomberg Bond Trader data. It was as high as 1.86 percent, the most since May 11. The price of the 1.625 percent security due in August 2022 was 98 10/32.
The 10-year yield faces so-called resistance at 1.86 percent, its 200-day moving average, according to data compiled by Bloomberg. The yield fell below its 200-day moving average on Apr. 6.
U.S. builders broke ground on homes at an annual rate of 756,000 houses in July, according to the median estimate of economists surveyed by Bloomberg News. June’s pace of 760,000 was the highest since October 2008.
Other reports today will show manufacturing in the Philadelphia area shrank in August and initial claims for unemployment benefits were little changed last week, according to separate surveys.
Housing Report
The U.S. added 163,000 jobs last month, a government report showed on Aug. 3, more than the 100,000 projected by analysts. Retail sales rose 0.8 percent, the biggest increase since February, Commerce Department figures showed Aug. 14. Industrial production increased 0.6 percent in July from June, the Federal Reserve reported yesterday.
Treasuries have handed investors a 1.6 percent loss this month, according to Bank of America Merrill Lynch data. An index of sovereign bonds around the world dropped 0.6 percent, the data show.
The MSCI All-Country World Index (MXWD) of stocks returned 2.4 percent including reinvested dividends, according to data compiled by Bloomberg.
Improvement in the economy is damping speculation the Fed will expand stimulus as soon as its Sept. 12-13 meeting.
No Recession
Dallas Fed President Richard Fisher said yesterday the U.S. economy probably won’t lapse into recession in 2013 and that new stimulus wouldn’t spur growth.
The U.S. central bank bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs. It’s now in the process of swapping shorter-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on long- term borrowing costs.
The Fed is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to August 2042 today as part of the program, according to the Fed Bank of New York website.
TIPS Auction
The U.S. is set to announce today how much it plans to raise in a sale of five-year Treasury Inflation Protected Securities Aug. 23.
The auction will probably be for $14 billion, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey. The last sale of the securities was for $16 billion on April 19.
An index of TIPS has declined 2.1 percent loss this month, based on the Bank of America figures. The U.S. consumer-price index rose 1.4 percent in July from the year before, the smallest increase since November 2010, the Labor Department data yesterday showed.
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, was 2.27 percentage points. The average over the past decade is 2.15 percentage points.
Investors received 1 percent of additional yield by buying 10-year notes in the U.S. instead of Japan. The difference was the most since May.
Japan, which has purchased almost five times the amount of Treasuries as China in 2012, is on course to overtake the world’s most populous country by year-end as the largest creditor to the U.S.
Investors in Japan bought $10.4 billion of Treasuries in June, bringing purchases for 2012 to $61.3 billion and total holdings of the debt to $1.1193 trillion, Treasury data yesterday showed.
China added $300 million to its portfolio of U.S. government securities for the month, raising its purchases this year to $12.4 billion and its stake in Treasuries to $1.1643 trillion.
Should both countries continue buying at their respective paces through 2012, Japan will end the year with more Treasuries.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
