BLBG:Treasuries Snap Loss Before Bernanke Speech; France Cut
Treasuries fluctuated before a speech by Federal Reserve Chairman Ben S. Bernanke today amid speculation the central bank is planning to increase bond purchases to spur the economy.
Demand for the safety of U.S. debt increased after Moody’s Investors Service cut France’s top Aaa credit grade by one step to Aa1, following a downgrade by Standard & Poor’s in January. Treasuries gave up initial gains as Asia stocks rose and economists said a U.S. report today will show housing starts capped the strongest two months in four years.
“I wouldn’t be surprised if we retest the low in Treasury yields in 2013,” said Hans Goetti, the Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which manages the equivalent of $1.49 billion. “There will be slower growth in 2013. The Fed will try to keep long-term yields down. They might buy Treasuries.”
U.S. 10-year note yields were little changed at 1.61 percent as of 6:45 a.m. in London, Bloomberg Bond Trader data show. The 1.625 percent security due in November 2022 changed hands at 100 3/32. The price rose 3/32 earlier. The record low yield was 1.38 percent in July.
The MSCI Asia Pacific Index of stocks advanced 0.3 percent, headed for its first three-day gain in a month.
All 21 U.S. primary dealers forecast the Fed will add Treasury purchases to the $40 billion a month in mortgage bonds it’s now buying, after its $667 billion program to extend bond maturities, known as Operation Twist, ends next month, according to a Bloomberg News survey conducted in the week ended Oct. 19.
Fed Operation
The central bank plans to buy as much as $2.25 billion of Treasuries maturing from February 2036 to November 2042 today as part of the extension program, according to the Fed Bank of New York’s website.
Bernanke is scheduled to address the Economic Club of New York at 12:15 p.m. today. The central bank’s next policy meeting is Dec. 11 to Dec. 12.
Housing starts probably totaled an annualized 840,000 units in October, following 872,000 in September, based on the median estimate of 82 economists surveyed by Bloomberg before the Commerce Department reports the figure at 8:30 a.m. New York time today. The increase would cap the best two-month performance since 2008.
The Bank of Japan ended a meeting by holding monetary policy unchanged, after expanding asset purchases in September and October. Japan’s 10-year rate fell 1/2 basis point to 0.73 percent, approaching this year’s low of 0.72 percent set in July.
RBA Outlook
The Reserve Bank of Australia said interest-rate reductions may be appropriate to spur economic growth, minutes of its Nov. 6 policy meeting showed. Yields on the nation’s 2022 bonds rose seven basis points to 3.16 percent, the biggest increase in a month. A basis point is 0.01 percentage point.
Volatility in U.S. government bonds dropped to the lowest level in more than five years before the U.S. Thanksgiving holiday.
Bank of America Merrill Lynch’s MOVE index, which measures price swings for Treasuries based on options, dropped to 54.7 yesterday, the lowest level since June 2007.
The Securities Industry and Financial Markets Association recommended Treasuries trading close Nov. 22 for Thanksgiving and shut at 2 p.m. New York time on Nov. 23.
Fiscal Cliff
Treasuries fell yesterday as optimism increased that the U.S. will avoid the automatic spending cuts and tax increases scheduled to occur at year-end, known as the fiscal cliff.
Government securities also slid as an industry report showed sales of previously owned U.S. homes unexpectedly increased last month.
BlackRock Inc. (BLK), the world’s largest money manager with $3.67 trillion in assets, recommended stocks over bonds and said U.S. officials will probably reach a compromise to ease the effects of the fiscal cliff.
“The combination of decent valuations, easy monetary policy, low inflation and still-positive economic growth suggests stocks will continue to outperform bonds over the next 12 months,” Bob Doll, an adviser to New York-based BlackRock, wrote on the company’s website yesterday.
The Fed’s preferred measure of inflation expectations, the five-year, five-year forward break-even rate, fell to 2.64 percent on Nov. 15, the most recent figure available in data compiled by Bloomberg. It was the lowest level in two months. The average over the past decade is 2.75.
Hajime Nagata, who helps oversee the equivalent of $128.6 billion at Diam Co., a unit of Dai-Ichi Life Insurance Co., Japan’s second-largest life insurer, said 10-year Treasury yields would become attractive at 1.7 percent.
“We’re waiting to buy,” Nagata said. “The debate on the fiscal cliff is progressing, and it looks like it will be resolved. The U.S. economy is not doing well other than the housing area.”
Treasuries have returned 2.7 percent in the year through yesterday, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index (MXWD) of stocks handed investors an 11 percent gain, according to data compiled by Bloomberg.
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.
