BLBG:Treasuries Snap Three-Day Loss Before Jobless Claims
Treasuries snapped a three-day loss before government data economists said will show initial claims for unemployment insurance rose last week as the job market struggles to improve.
The U.S. plans to sell $7 billion of 30-year Treasury Inflation Protected Securities today, with the bonds poised to draw a record low auction yield. Fidelity Investments, which oversees $1.58 trillion, favors high-yield and emerging-market debt following the slide in rates on investment-grade securities. Pacific Investment Management Co., with $1.82 trillion, said the U.S. credit rank may be cut next year.
“Yields will stay pretty low,” said Kim Youngsung, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $102.2 billion. “Treasuries are still a safe haven. We need to see more data to confirm the economic recovery.”
U.S. 10-year yields were little changed at 1.81 percent at 7:01 a.m. in London, according to Bloomberg Bond Trader data. The record low was 1.38 percent on July 25. The price of the 1.625 percent security due in August 2022 was 98 10/32 today.
Japan’s 10-year rate added two basis points to 0.79 percent. It touched 0.795 percent, the most since Sept. 25.
U.S. Data
U.S. jobless claims probably rose to 365,000 last week from 339,000 in the previous period, according to the median forecast among 49 economists surveyed by Bloomberg News. The Labor Department will release the data at 8:30 a.m. New York time today. A 30,000 decline the week before raised speculation the government had difficulty adjusting the data for seasonal swings at the start of a quarter.
A survey of manufacturing activity from the Federal Reserve Bank of Philadelphia and the Conference Board’s index of leading economic indicators will also show gains, according to separate surveys.
Treasuries fell yesterday as Commerce Department figures showed housing starts jumped 15 percent last month to an annual rate of 872,000, the most since July 2008.
The Federal Reserve is swapping short-term Treasuries in its holdings for longer maturities to put downward pressure on borrowing costs, part of its efforts to support the economy.
It plans to buy as much as $2.25 billion of securities due from February 2036 to August 2042 today as part of the plan, according to the Fed Bank of New York’s website.
Chinese GDP
China’s gross domestic product expanded 7.4 percent in the third quarter from a year earlier, the National Bureau of Statistics said today, versus 7.6 percent in the second.
U.S. 30-year TIPS yielded 0.47 percent. The last sale of the securities on June 12 drew an auction rate of 0.52 percent, the least since the government began selling them in 1998.
Investors bid for 2.64 times the amount of debt available, versus the average of 2.51 times for the previous 10 sales.
Inflation protection isn’t the only reason to buy the bonds. Like all U.S. government debt, the securities are a haven for investors seeking safety, which can explain why they gain even as inflation holds below its average over the past 10 years.
The securities are also an alternative to conventional Treasuries whose yields are approaching record lows. The principal amount changes at the same rate as the consumer price index. With an increase in the index, or inflation, the principal rises. With a decline in the index, or deflation, it decreases, according to the government’s TreasuryDirect website.
When the security matures, the holder is paid the adjusted or original principal, whichever is greater, the website says.
U.S. consumer prices increased 2 percent in September from the year before, according to the latest figures from the Labor Department. The average over the past decade is 2.5 percent.
TIPS Returns
The difference between rates on 30-year bonds and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, was 2.48 percentage points, near the 10-year average. TIPS have returned 6 percent in 2012, versus 1.4 percent for conventional Treasuries, according to Bank of America Merrill Lynch indexes.
The Treasury is also scheduled to announce today the sizes of two-, five- and seven-year auctions scheduled for next week.
The U.S. fiscal position has put the nation’s debt rating at risk, Scott Mather, Pimco’s head of global portfolio management, said today in Wellington.
“The U.S. will get downgraded,” Mather said. “It depends on what the end of the year looks like, but it could be fairly soon after that.” Pimco is based in Newport Beach, California, and runs the world’s biggest bond fund.
The Congressional Budget Office has warned the U.S. economy will fall into a recession if $600 billion of scheduled government spending cuts and tax increases take place at the start of 2013. While Standard & Poor’s stripped the nation of its AAA grade in 2011, the decision didn’t stop investors from driving yields to all-time lows this year.
Fidelity favors “credit sensitive” bonds, Bill Ebsworth, the chief investment officer for global asset allocation, wrote in a report yesterday on the Boston-based company’s website. “We have remained largely underweight investment-grade bonds given near record-low yields.”
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
