BLBG:Treasuries Hold Gain on Speculation Durable-Goods Orders Dropped
Treasuries held a gain from yesterday before a government report that economists said will show orders for durable goods dropped in October, underpinning demand for the safest assets.
U.S. securities were supported on speculation a plan agreed on by euro-area finance ministers for Greece to buy back its bonds will fail to contain the region’s debt crisis. Lawmakers return this week to discuss the so-called fiscal cliff of spending cuts and tax increases set to take effect in January. The Treasury plans to sell $35 billion of two-year debt today, the first of three auctions this week for $99 billion.
“There’s a snap back in risk aversion so we see Treasuries higher,” said Ralf Umlauf, a research analyst at Landesbank Hessen-Thueringen in Frankfurt. “We are watching for the durable goods orders. The consensus is for a weaker number and maybe many market players are trading on this. We think there might be a slightly positive outcome and that would be negative for Treasuries.”
The benchmark 10-year yield fell less than one basis point, or 0.01 percentage point, to 1.66 percent at 6:46 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 rose 1/32, or 31 cents per $1,000 face amount to 99 22/32. The 30-year yield declined one basis point to 2.80 percent.
Bookings for U.S. goods meant to last at least three years dropped 0.7 percent, after rising 9.8 percent in September, according to the median forecast of 75 economists surveyed by Bloomberg News. Other reports today will show property values and consumer confidence both increased, according to separate Bloomberg surveys.
Yield Forecasts
Treasury 10-year yields will climb toward 2 percent in the next six months as the economy recovers and policy makers avert the automatic tax increases and spending cuts due in January, according to Umlauf at Landesbank Hessen-Thueringen.
The benchmark yield will probably climb to 1.98 percent by the middle of next year, according to a Bloomberg survey of financial companies.
Euro-region finance ministers meeting in Brussels overnight cut the rates on Greece’s bailout loans, suspended interest payments for a decade, gave the country more time to repay and engineered a Greek bond buyback.
Debt Buyback
“What is interesting is, in the statement, the outcome of the debt buyback is a condition for other things to happen, so that poses a risk if it’s not successful,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “Until we have some breakthrough news on the fiscal cliff, I don’t see many reasons for Treasuries to move a lot lower.”
The approach of the fiscal cliff deadline is making some investors reluctant to sell Treasuries, said Kei Katayama, who helps oversee the equivalent of $60.6 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo.
President Barack Obama is working with lawmakers to try to ease the measures to keep gross domestic product growing. So far, talks between Obama and congressional Republicans haven’t yielded any significant progress. Ten-year yields have been in a range of 35 basis points since the middle of August.
“Nobody’s willing to push yields higher,” Katayama said. “Everyone believes there will be some kind of compromise but nobody can say exactly what the influence will be on GDP. That’s the reason Treasury yields are staying in a very narrow range.”
‘Different Course’
Federal Reserve Bank of Dallas President Richard Fisher said he advocates limits on U.S. quantitative easing.
The Fed could “pursue a different course” and announce “a limit as to how much we are going to acquire of Treasuries and mortgage-backed securities, say up to a limit of X, up to a point where our balance sheet reaches that,” Fisher said in a speech today in Berlin.
The two-year notes scheduled for sale today yielded 0.28 percent in pre-auction trading. The prior auction of the maturity on Oct. 23 drew record purchases from the group of investors that includes pension funds and insurance companies. So-called direct bidders, or institutional investors outside of the primary dealers, bought 38.2 percent of the notes.
The U.S. will sell $35 billion of five-year debt tomorrow and $29 billion of seven-year notes on Nov. 29.
The Fed plans to buy as much as $2 billion of Treasuries maturing from February 2023 to February 2031 today, according to the Fed Bank of New York’s website.
The purchases are part of the central bank’s effort to put downward pressure on long-term borrowing costs by selling shorter-term Treasuries and buying those due in six to 30 years.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
