BLBG:Treasuries Hold Gains Before Trade Data, 30-Year Auction
Treasury 30-year bonds fell for the first time in three days as the U.S. prepared to sell $13 billion of the securities and European stocks advanced after demand at an Italian debt sale increased.
The decline pushed yields up from the lowest in a week on speculation this week’s gains weren’t justified amid signs the economy is improving. Italy’s auction of three-year notes attracted bids equivalent to 1.67 times the amount sold, up from 1.49 times last month. Investor appetite for the relative safety of government fixed-income assets also waned as the Stoxx Europe 600 Index (SXXP) rose for the first time in four days.
“We are at expensive levels,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “In anticipation of the bond supply, there’s a little bit of caution in the longer end of the curve. Stocks are up in Europe.”
The 30-year bond yield rose two basis points, or 0.02 percentage point, to 2.90 percent at 7:25 a.m. New York time, after dropping to 2.87 percent, the lowest level since Oct. 5. The 2.75 percent security due August 2042 fell 10/32, or $3.13 per $1,000 dollar face amount, to 97 3/32. Ten-year note yields added two basis points to 1.69 percent after declining to 1.67 percent, also the least since Oct. 5.
Term Premium
The 10-year term premium, a model created by economists at the Federal Reserve that includes expectations for interest rates, growth and inflation, was negative 0.90 percent. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for the past 10 years is positive 0.44 percent. It fell to a record low of negative 1.02 percent on July 24.
The 30-year bond scheduled for sale today yielded 2.90 percent in pre-auction trading, compared with 2.896 percent at the last offering, on Sept. 13. The record auction low of 2.58 percent was set in July. Investors bid for 2.68 times the amount of the securities offered last month. Thirty-year yields have averaged 3.96 percent in the past five years.
Thirty-year U.S. debt has gained 2.5 percent this year, according to Bank of America Merrill Lynch indexes, underperforming the 3.9 percent gain in the 7-to-10 year Treasury market. The securities returned 35.5 percent in 2011, more than double the 15 percent gain by middle-term Treasuries.
Stronger Economy
There are some signs of improvement in the U.S. economy, as President Barack Obama and challenger Mitt Romney prepare to face off in the Nov. 6 election.
U.S. unemployment declined to 7.8 percent in September from 8.1 percent the month before, the Labor Department reported Oct. 5. Manufacturing unexpectedly expanded in September, an industry report showed Oct. 1.
The Stoxx Europe 600 Index climbed 0.5 percent, after slipping by 2 percent in the previous three days. Standard & Poor’s 500 Index futures expiring in December added 0.4 percent.
Declines by Treasuries may be limited before reports today that economists said will show the U.S. trade deficit widened in August and the number of Americans filing first-time claims for unemployment insurance payments increased last week, according to Bloomberg surveys. Demand rose at a 10-year note sale yesterday and climbed to a record at a three-year sale on Oct. 9, amid investor appetite for their relative safety.
Spain Downgrade
Treasuries advanced earlier as Spain’s credit rating was lowered two levels to BBB-, one above junk, by Standard & Poor’s. The New York-based company cited mounting economic and political risks as the government considers a second bailout, it said in a statement yesterday.
“There’s only a limited upside for Treasury yields,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands. “The global economic slowdown is one of the major things, in addition to the situation in Spain.”
Ten-year rates may end the year between 1.60 percent and 1.70 percent, said Marey. The median prediction of 78 economists surveyed by Bloomberg is 1.75 percent.
Weak economic recoveries in the U.S. and Europe stem partly from insufficient fiscal stimulus as governments seek to reduce their deficits, Federal Reserve Vice Chairman Janet Yellen said today in a speech in Tokyo. A policy of asset purchases, known as quantitative easing, is helpful for the global economy by aiding growth in the U.S., Europe and Japan, Israel’s central bank head Stanley Fischer said, also speaking in Tokyo.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
