BLBG:Treasuries Snap Loss As Technical Sign Curbs 4-Week Slide
Treasuries snapped a four-day decline after a technical indicator showed 10-year yields have climbed to levels that may increase investor demand for U.S. government debt.
A selloff paused when 10-year note rates climbed as high as 1.86 percent yesterday, matching the 200-day moving average, according to data compiled by Bloomberg. Treasuries tumbled this month as reports on building permits, industrial production, retail sales and jobs all showed improvement.
“In the short-term the 200-day moving average is acting as resistance and yields could fall back towards the 1.73 percent area, which was the June high,” said Axel Rudolph, a technical analyst at Commerzbank AG in London. “From there we should continue to go higher.” Resistance refers to an area on a yield graph where investors anticipate buy orders to be clustered.
The 10-year yield was little changed at 1.82 percent at 7:27 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent security due August 2022 traded at 98 1/4. The rate has climbed 36 basis points since July 20, marking gains in each of the four weeks since, the longest run of increases since December 2010.
“We have seen a liquidation,” said Akira Takei, the head of the international fixed-income department at Mizuho Asset Management Co., which oversees the equivalent of $41.5 billion and is a unit of Japan’s third-biggest publicly traded bank. “The U.S. Treasury market now has very good value.”
Takei said he sold 10-year note futures contracts in July and is considering buying them back.
Rebounding Indicators
An index of U.S. leading economic indicators probably rose 0.2 percent in July from June, rebounding from a 0.3 percent decline, according to a Bloomberg News survey of 46 economists before the Conference Board releases the figure today. The report gauges of the outlook for the next three to six months.
U.S. retail sales rose 0.8 percent in July, a report on Aug. 14 showed, above the median estimate of economists in a Bloomberg survey. A separate report on Aug. 3 showed the U.S. added 163,000 jobs last month, more than the 100,000 projected by analysts. Signs of improvement in the economy have boosted yields as investors reduced bets that the Federal Reserve will start another quantitative easing program when it meets on Sept. 12-13.
“You could make the case that fair value is closer to 2 percent than 1 percent,” said Steven Major, the head of fixed- income research at HSBC Holdings Plc in London, speaking about U.S. 10-year yields in an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse.”
Comparative Returns
Minneapolis Fed President Narayana Kocherlakota said the U.S. central bank has gone too far by pledging to hold its main interest rate near zero at least through late 2014. The Fed reiterated the pledge Aug. 1 as it seeks to support the U.S. economy.
“I would not have chosen to put that date as far out as the committee has chosen,” Kocherlakota said in response to an audience question after a speech yesterday in Williston, North Dakota.
U.S. government securities have handed investors a 1.6 percent loss this month as of yesterday, according to Bank of America Merrill Lynch indexes, as economic data exceeded forecasts and the European debt crisis eased. An index of sovereign bonds around the world slid 0.7 percent, reflecting waning demand for the relative safety of debt.
The MSCI All-Country World Index (MXWD) of stocks returned 3.2 percent including reinvested dividends, according to data compiled by Bloomberg.
Inflation Expectations
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, has widened to 2.27 percentage points from 2.08 percentage points a month ago. The average over the past decade is 2.15 percentage points.
Germany’s Chancellor Angela Merkel backed the European Central Bank’s conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro.
“Time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,” Merkel told reporters in Ottawa yesterday at a joint press conference with Canadian Prime Minister Stephen Harper. Euro-area policy makers “feel committed to do everything we can to maintain the common currency.”
To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
