BLBG:Treasuries Hold Gain as Fidelity, Pimco See Demand
Treasuries held gains from yesterday as Fidelity Investments and Pacific Investment Management Co. said the so-called fiscal cliff and Federal Reserve bond purchases will drive demand for debt.
U.S. government securities returned 0.6 percent in the past month, Bank of America Merrill Lynch indexes show, capped by a rally yesterday as President Barack Obama won re-election, Republicans kept control of the U.S. House and Democrats held a majority in the Senate. The MSCI All-Country World Index (MXWD) of stocks handed investors a 2.9 percent loss in the period. The U.S. is scheduled to sell $16 billion of 30-year bonds today.
“We’re back in the lines of political games,” said Roger Bridges, who oversees the equivalent of $15.6 billion of debt as head of fixed income at Tyndall Investment Management Ltd. in Sydney, a unit of Japan’s Nikko Asset Management Co. “If we’re going to continue with this policy uncertainty, then they will send the economy downward and bonds will rally.”
U.S. 10-year notes yielded 1.68 percent at 1:47 p.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in November 2022 was 99 17/32. Yields fell 10 basis points, or 0.10 percentage point, yesterday in the biggest decline since August. They are approaching the record low of 1.38 percent set July 25.
Japan’s 10-year rate touched 0.745 percent, the lowest since Aug. 7 and was 1 1/2 basis points lower at 0.75 percent.
People own government bonds because they want assets that do well in a flight to quality when equities fall, said Bill Irving at Boston-based Fidelity, which oversees $1.58 trillion.
Low Yields
“Interest rates are very low, and I think a number of factors will keep them low for the foreseeable future,” Irving, who manages the Fidelity Government Income Fund (FGOVX), wrote on the company’s website yesterday. “Those headwinds include the fiscal cliff, the still-high unemployment rate, and the fact that the Federal Reserve’s monetary policy is keeping downward pressure on rates.”
Obama’s re-election bolstered expectations that Fed Chairman Ben S. Bernanke will keep supporting the economy via bond purchases.
Ten-year notes have “a bid based upon the Bernanke expectation for easy money as far as the eye can see,” Pimco’s Bill Gross, who runs the world’s biggest bond fund, said yesterday on Bloomberg Television’s “Street Smart” with Trish Regan.’’ As for the fiscal cliff, “finding that middle ground will be very difficult,” said Gross, co-chief investment officer at the Newport Beach, California-based company that oversees $1.92 trillion.
Fiscal Cliff
The fiscal cliff is made up of more than $600 billion of tax increases and spending cuts scheduled to take effect automatically next year unless Congress acts.
Central bank policy makers announced Sept. 13 the Fed will buy $40 billion of agency mortgage-backed securities a month until the outlook for the labor market improves “substantially.”
The Fed is also swapping shorter-term Treasuries in its holdings with those due in 6 to 30 years as part of its efforts to put downward pressure on long-term borrowing costs.
It plans to buy as much as $5.25 billion of Treasuries maturing from November 2020 to August 2022 today as part of the program, according to the Fed Bank of New York’s website.
Today’s 30-year sale comes after demand fell at a 10-year auction yesterday and a 3-year offering the day before.
Investors bid for 2.59 times the amount of debt available yesterday, versus 3.26 times at the prior 10-year auction in October. For the three-year sale, the figure dropped to 3.41 from 3.96.
30-Year Sale
Money managers at the last 30-year auction on Oct. 11 submitted orders to buy 2.49 times the amount offered, versus an average of 2.59 for the past 10 sales.
Indirect bidders, the investor class that includes central banks outside the U.S., bought 26.5 percent of the bonds, the least since August 2011.
The trade deficit in the U.S. probably widened in September as imports climbed, economists said before a report at 8:30 a.m. New York time today. The gap grew to $45 billion, the biggest since May, from $44.2 billion in August, according to the median forecast of 75 economists surveyed by Bloomberg News.
Ten-year yields will be 1.73 percent at Dec. 31 and rise to 2.03 percent by the end of June, according to a Bloomberg survey of banks and securities companies with the most recent projections given the heaviest weightings.
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.
