BLBG:Treasuries Decline as Obama Sees Fiscal Cliff Resolution
Treasuries fell, headed for the steepest loss in almost two weeks, after President Barack Obama expressed confidence the U.S. will avoid the automatic spending cuts and tax increases scheduled to occur at year-end.
Nomura Holdings Inc., one of the 21 primary dealers that underwrite the U.S. debt, is trimming its position as officials make progress on the so-called fiscal cliff. Treasuries also slid before an industry report that economists said will show sales of previously owned U.S. homes were within 2 percent of the most in two years in October.
“There’s a high probability that the fiscal cliff will be resolved,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “The economy is improving gradually. You really can’t put money in Treasuries. Investors should put their money in equities.”
U.S. 10-year yields increased two basis points, or 0.02 percentage point, to 1.60 percent as of 2:43 p.m. in Tokyo, Bloomberg Bond Trader data show. The 1.625 percent security due in November 2022 declined 5/32, or $1.56 per $1,000 face amount, to 100 7/32.
The last time yields rose as much was Nov. 6. They are still less than the 10-year average of 3.68 percent.
Ten-year rates will climb to 2 percent by year-end, Shimazu said. A Bloomberg survey of banks and securities companies projects the rate will be 1.72 percent at Dec. 31 and 1.94 percent by June 30, with the most recent projections given the heaviest weightings.
Japan’s 10-year yield was little changed at 0.735 percent, versus this year’s low of 0.72 percent set in July.
Obama Trip
“I am confident we can get our fiscal situation dealt with,” Obama said yesterday at a news conference in Bangkok, where he started a three-nation Asian trip.
Before Obama left, he began on a round of deficit-reduction talks with top Republicans and Democrats to avoid the combination of $607 billion in automatic tax increases and spending cuts that threatens to throw the country into a recession.
“In light of recent developments out of D.C., and political leaders at least trying to move in the right direction and avert a hard fiscal cliff, we think it’s prudent to pare back on some of our tactical bullish expressions in our portfolio,” George Goncalves, the head of interest-rate research at Nomura, wrote to clients Nov. 16.
Housing Data
Purchases of existing homes probably held at a 4.75 million annual rate last month, according to the median forecast in a Bloomberg News survey before the report at 10 a.m. New York time today from the National Association of Realtors. Sales climbed at an annual rate of 4.83 million units in August, which was the most since May 2010.
Housing starts probably eased in October to an 840,000 pace from a four-year high of 872,000 units in September, Commerce Department figures tomorrow may show.
The Federal Reserve is swapping short-term Treasuries in its holdings with those due in six to 30 years to spur the economy by putting downward pressure on borrowing costs. The central bank plans to sell as much as $8 billion of securities due from July 2015 to November 2015 today, according to the Fed Bank of New York’s website.
Treasuries completed a four-week gain on Nov. 16, driven by demand for the relative safety of U.S. securities as economists increased warnings about the fiscal cliff.
Investor appetite for the most secure assets had also increased as Europe’s debt crisis remained unresolved and Israeli ground forces prepared to invade the Gaza Strip for the first time in almost four years.
International Demand
Investors outside the U.S. are scooping up Treasuries.
Brazil, Belgium, Luxembourg, Russia, Switzerland, Taiwan and Hong Kong boosted their holdings of U.S. government securities by a collective $264.8 billion since the last debt- ceiling debate ended in August 2011, Treasury data released Nov. 16 show. The purchases more than made up for the $123 billion decline in U.S. government debt owned by China, America’s biggest overseas creditor, to $1.156 trillion.
Treasuries have returned 0.9 percent in the month ended Nov. 16, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index (MXWD) of stocks handed investors a 5.2 percent loss, according to data compiled by Bloomberg.
For 2012, Treasuries gained 2.8 percent and the MSCI index advanced 8.9 percent.
The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.95 percent as of Nov. 16. It was the lowest level in six weeks. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The all-time low was negative 1.02 percent on July 24.
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.
