Treasuries fell, heading for the smallest annual gain since 2009, as economists said reports today and tomorrow will show housing is driving the U.S. expansion, backing forecasts for yields to rise next year.
U.S. government securities returned 2 percent in 2012, based on Bank of America Merrill Lynch data. The MSCI All- Country World Index (MXWD) of stocks handed investors a 17 percent gain including reinvested dividends, according to data compiled by Bloomberg. Policy makers have yet to reach an agreement on how to avoid the so-called fiscal cliff of more than $600 billion in tax increases and spending cuts scheduled to start in January.
“Some investors are staying away from the market until they get a clearer picture of the fiscal-cliff talk,” said Charles Berry, a government-bond trader at Landesbank Baden Wuerttemberg in Stuttgart, Germany. “Why should they buy Treasuries in the last two trading days of the year when they don’t know what will happen? The housing data is expected to show some improvement.”
The benchmark 10-year yield rose two basis points, or 0.02 percentage point, to 1.77 percent at 6:01 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 fell 6/32, or $1.88 per $1,000 face amount, 98 22/32. The yield has climbed from the record low of 1.379 percent set on July 25.
Home Sales
U.S. new-home sales climbed to an annual rate of 380,000 in November, the most since April 2010, according to a Bloomberg News survey before the Commerce Department report at 10 a.m. New York time. Consumer confidence worsened in December and initial claims for jobless insurance were little changed last week, separate reports today will show.
Pending sales of existing homes rose 1 percent in November from the previous month for a third gain, according to the survey median before tomorrow’s data from the National Association of Realtors.
“If the market changes its focus from the fiscal cliff to the economy, we will see the yield go higher,” said Hajime Nagata, who helps oversee the equivalent of $120 billion as an investor in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co. “The housing market will hold its momentum.”
Nagata said he trimmed his Treasury holdings earlier this month when 10-year yields declined to 1.60 percent.
‘Extraordinary Measures’
Treasuries rose yesterday as U.S. leaders prepared to resume talks on the budget stalemate that is threatening to push the world’s biggest economy into a recession.
Treasury Secretary Timothy F. Geithner said yesterday he will take “extraordinary measures” to postpone a U.S. default into early 2013 while President Barack Obama and Congress work out a deficit-reduction deal.
“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner wrote in a letter to congressional leaders.
The 10-year yield will climb to 2.17 percent by the end of 2013, according to a Bloomberg survey of economists with the latest estimates given the highest weighting. The figure is still below the average of 3.66 percent over the past decade.
At the same time, economists are trimming their forecasts for how far yields will rise. A Bloomberg survey in April showed the median prediction was for 10-year yields of 3 percent by the close of 2013.
Yield Forecasts
A decline in rates this year caught analysts off guard. Economists began 2012 calling for 10-year yields to advance to 2.50 percent by Dec. 31 from 1.88 percent at the end of 2011.
While the economy is showing signs of improvement, it’s slower than the Federal Reserve wants.
Policy makers said on Dec. 12 they will purchase $45 billion of Treasuries a month and keep the target rate for overnight loans between banks at about zero at least as long as unemployment is more than 6.5 percent and inflation between one and two years ahead is expected to be no more than 2.5 percent. The central bank is also buying $40 billion of mortgage-backed securities each month.
The difference between yields on two-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was little changed at 1.67 percentage points.
The Fed plans to buy as much as $5.25 billion of Treasuries maturing from December 2018 to November 2020 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 borrowing costs by exchanging short-term securities from its holdings for longer-term debt, under a program scheduled to end this month.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net
