BLBG:Treasuries Advance for Fourth Day as Stocks Fall on China
Treasuries rose for a fourth day before a report that economists said will show manufacturing in the Philadelphia region shrank in September, underpinning demand for the safest assets.
Ten-year note yields fell to the lowest level in a week after purchasing managers surveys indicated both Chinese and euro area manufacturing contracted this month. Thirty-year bonds led gains after yields climbed to the highest level since May last week. Yields on 10-year Treasury Inflation Protected Securities dropped toward a record as the U.S. prepared to sell $13 billion of the securities.
“Markets are not optimistic about today’s data and so the Treasury market is supported,” said Ralf Umlauf, a research analyst at Landesbank Hessen-Thueringen in Frankfurt. “There’s a bit of snap back after the rise in yields we saw last week.”
The benchmark 10-year yield declined three basis points, or 0.03 percentage point, to 1.74 percent at 6:11 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent security due in 2022 rose 9/32, or $2.81 per $1,000 face amount, to 98 29/32. The yield earlier fell to 1.72 percent, the lowest level since Sept. 13.
Ten-year yields are likely to extend declines in the short- term before rising to 2.10 percent by year-end, Umlauf said.
U.S. government securities have extended their run of gains to the longest in four weeks amid speculation the world’s biggest economy will struggle even as the Federal Reserve tackles the slowdown.
Economic Index
The Fed Bank of Philadelphia’s general economic index will be minus 4.5 for September, according to a Bloomberg News survey. The Conference Board’s gauge of the outlook for the next three to six months fell 0.1 percent in August, after gaining 0.4 percent in July, a separate survey showed. The reports will be released at 10 a.m. New York time.
“We’re looking for yields to go lower,” said Bin Gao, an interest-rate strategist in Hong Kong at Bank of America Corp., whose Merrill Lynch unit is one of 21 primary dealers required to bid at government debt auctions. “The U.S. economy is still mixed. You get good data one day and bad data the next.”
A preliminary index of China’s manufacturing was 47.8 for September, versus 47.6 last month, according to HSBC Holdings Plc and Markit Economics. A similar index of euro-area manufacturing was 46 this month, versus 45.1 in August, separate data showed. Readings less than 50 indicate contraction.
TIPS Auction
The yield on 10-year TIPS fell three basis points to negative 0.81 percent after declining to an all-time low minus 0.86 percent on Sept. 17.
Investors bid for 2.62 times the amount of debt offered at the previous sale of the securities on July 19.
An index of TIPS has returned 0.5 percent this month as of yesterday, according to Bank of America Merrill Lynch indexes. The U.S. Treasury Master Index has fallen 1 percent over the same period, the gauges show.
Fed Bank of Dallas President Richard Fisher said yesterday the central bank’s asset purchases have led to an increase in market expectations for quicker inflation. The central bank said last week it would buy $40 billion of mortgage-based securities a month to put downward pressure on borrowing costs.
The difference between yields on 10-year notes and similar- maturity TIPS, a gauge of expectations for consumer prices over the life of the debt, widened to 2.73 percentage points on Sept. 17, the most in six years.
‘Strong’ Demand
“Demand for TIPS will remain strong,” Mikael Nilsson, an analyst at Barclays Capital in London, wrote today in a note to clients. “Investors will continue to diversify some of their nominal exposure into real assets in light of the unconventional and dovish Fed monetary policy.”
The central bank is also swapping shorter-term Treasuries in its holdings with those due in six to 30 years. It plans to sell as much as $8 billion of debt maturing from June to August 2015 today as part of the program, according to Fed Bank of New York’s website.
Investors should favor shorter maturities because they will fall less if yields rise, said Yoshiyuki Suzuki, head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $73.1 billion in assets.
“The Fed may allow some inflation,” he said. “The actual rate is stable, but inflation expectations are going up.”
The Treasury is scheduled to announce today the size of two-, five- and seven-year auctions scheduled for next week.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
