BLBG:Treasuries Set for Weekly Drop as Stocks Rise on ECB Plan
Treasuries were set for the first weekly drop in three after European officials unveiled plans to buy bonds to curb the euro region’s debt crisis, spurring a global stock rally and sapping demand for safer assets.
Benchmark 10-year debt slid for a fourth day after European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program. Treasury losses were limited amid speculation a U.S. report today will show hiring in August wasn’t fast enough to lower the unemployment rate, reducing the probability that the Federal Reserve will expand monetary stimulus.
“We expect a gain in Treasury yields,” said Yoshinori Shigemi, a strategist at RBS Securities Japan Ltd. in Tokyo, a unit of Royal Bank of Scotland Group Plc. In the wake of the ECB’s action “we see a higher chance that the risk-on environment will continue.”
The 10-year note yield added one basis point to 1.69 percent at 7 a.m. in London. The 1.625 percent note due August 2022 declined 1/8, or $1.25 per $1,000 face amount, to 99 12/32. The yield has risen 14 basis points since Aug. 31 after falling 26 basis points in the previous two weeks.
Ten-year yields are likely to advance to about 1.8 percent by year-end, said Shigemi. Should his forecast turn out be correct, investors who buy the securities today would lose 0.4 percent, according to data compiled by Bloomberg.
Japan’s bonds fell, with 10-year yields rising 1 1/2 basis points to 0.82 percent, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.
The MSCI Asia Pacific Index of shares climbed 2.1 percent after the Standard & Poor’s 500 Index touched the highest since May 2008.
ECB Purchases
The ECB’s bond-buying plan, called Outright Monetary Transactions, will focus on government notes with maturities of one to three years, Draghi said yesterday. The ECB will only intervene in the secondary market if a country has asked Europe’s bailout fund to buy its debt on the primary market, ensuring strict conditions are agreed to, he said.
Labor Department data due today may show the U.S. added 130,000 jobs last month, trailing the 163,000 increase in July, according to economist estimates in a Bloomberg News survey. The jobless rate held steady at 8.3 percent, economists predicted.
The policy-setting Federal Open Market Committee meets Sept. 12-13. Fed Chairman Ben S. Bernanke, speaking on Aug. 31 at a conference in Jackson Hole, Wyoming, said the costs of “nontraditional policies” appeared manageable when considered carefully. He said he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.”
Rate Pledge
The U.S. central bank has kept its benchmark interest rate in a range of zero to 0.25 percent since December 2008 and has pledged to maintain that level through late 2014. The Fed also purchased $2.3 trillion of bonds from 2008 to 2011 in two rounds of so-called quantitative easing to stimulate the economy through lower borrowing costs.
“Our main scenario envisages a higher chance that the Fed will extend its low-rate commitment,” said Shinichiro Kadota, a strategist at Barclays Plc in Tokyo. “If the Fed extends the pledge to mid- or end-2015, it will weigh on short-term yields up to five years.”
Kadota recommended buying mortgage-related securities, citing lower interest rates and volatility.
Such debt has returned 1.1 percent in the past three months, according to a Bank of America Merrill Lynch index. An equivalent gauge for Treasuries has risen 0.3 percent.
Bank of America Merrill Lynch’s MOVE index, which measures price swings based on Treasury options, was at 71 basis points yesterday. The average over the past three years was 90.1.
The U.S. central bank is scheduled to sell as much as $8 billion of Treasuries today due from February 2013 to February 2014 as part of so-called Operation Twist, a program to swap shorter-term securities in the Fed’s holdings with longer-term debt to put downward pressure on borrowing costs.
The Treasury will auction $32 billion of three-year notes on Sept. 11, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Sept. 13.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
