BLBG:Treasuries Rise Before Personal Incomes, Activity Reports
Treasuries rose, extending a second weekly gain, before U.S. reports forecast to show personal income and a measure of business activity slowed, adding to signs the world’s biggest economy is losing momentum.
Ten-year yields approached the lowest level in three weeks as European leaders struggle to find ways to pay their nations’ debts amid protests against austerity measures. U.S. government securities returned 0.6 percent this quarter, after gaining 3 percent in the prior three months, Bank of America Merrill Lynch indexes show. The Federal Reserve said Sept. 13 it plans to buy $40 billion of mortgage-based securities a month to support the economy by putting downward pressure on borrowing costs.
“Treasuries will continue to be supported in an ongoing risk environment,” said Padhraic Garvey, head of developed market debt at ING Bank NV in Amsterdam. “Growth remains weak and the Fed is likely to continue with its easy monetary policy. Treasuries are also reactive to the problem in Europe. Yields will stay low.”
The 10-year yield dropped three basis points, or 0.03 percentage point, to 1.62 percent at 6:10 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 rose 10/32, or $3.13 per $1,000 face amount, to 100 1/32. The yield, which has declined 13 basis points this week, fell to 1.61 percent on Sept. 26, the lowest since Sept. 7.
The 10-year is eight basis points below the 1.7 percent rate of inflation after dropping below that level on Sept. 25 for the first time in two weeks.
Personal Income
Growth in personal incomes slowed to 0.2 percent last month from 0.3 percent in July, according to a Bloomberg survey before the Commerce Department data at 8:30 a.m. New York time. Personal spending probably stagnated in August after adjusting for inflation, economists said the report will also show.
U.S. business activity grew in September at the slowest pace in four months, the Institute for Supply Management-Chicago Inc. will say today, a separate Bloomberg survey showed. Orders for U.S. durable goods slumped 13.2 percent in August, the most since January 2009, government figures showed yesterday.
“The economic situation is very weak,” said Hiromasa Nakamura, who invests in U.S. debt from Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $42.4 billion. ‘I don’t think it’s too late to buy” Treasuries, he said.
‘Will Fall’
Ten-year yields will fall to a record 1.35 percent by Dec. 31, Carl Lantz, head of interest-rate strategy for Credit Suisse Group AG, wrote in a report yesterday.
The Fed may begin next year with a monthly buying pace of $100 billion in securities, made up of $60 billion of Treasuries and $40 billion of mortgage bonds, Lantz wrote. It may also drop its offsetting sales of shorter-maturity debt, he said.
“Yields can, and will, fall,” Lantz wrote. Credit Suisse is one of the 21 primary dealers that trade directly with the U.S. central bank.
A Bloomberg survey of economists with the most recent projections given the heaviest weightings predicts the 10-year yield will rise to 1.80 percent by Dec. 31.
Treasuries fell yesterday for the first time in nine days, snapping their longest rally in almost four years, as optimism that Spain is moving closer to meeting budget-deficit targets curbed the refuge appeal of U.S. government debt.
Spanish Prime Minister Mariano Rajoy’s cabinet approved a tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s third-biggest budget deficit. Demonstrators in Spain and Greece protesting budget cuts clashed with police this week.
Fed Buying
The Fed is swapping shorter-term Treasuries in its holdings with those maturing in six to 30 years. The central bank plans to buy as much as $2 billion of debt maturing from February 2036 to August 2042 today as part of the program, according to Fed Bank of New York’s website.
Treasury gains slowed this quarter from last as investors sought higher rates than those available from government debt.
“There’s a real scramble for yield around the world,” George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., said Sept. 26 on Bloomberg Radio’s “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. Nomura is also a primary dealer.
For all of 2012, Treasuries returned 2.3 percent as of yesterday, while bonds in an index of U.S. investment-grade and high-yield company debt gained 9.5 percent, the Bank of America indexes show. The MSCI All-Country World Index of shares gained 14 percent in the period, including reinvested dividends.
To contact the reporter 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: Paul Dobson at pdobson2@bloomberg.net
