BLBG:Treasuries Lag Behind Stocks by Most Since 2009
Treasuries lagged behind stocks this year by the most since 2009 -- with equities returning eight times more than bonds -- while economists said an industry report today will show housing is driving the U.S. economy.
U.S. government securities have returned 2 percent in 2012, based on Bank of America Merrill Lynch data. The MSCI All- Country World Index (MXWD) of stocks surged 17 percent including reinvested dividends, according to data compiled by Bloomberg. Europe has made some progress toward resolving its debt crisis, helping fuel demand for higher-yielding assets.
“Investors will shift money from the bond market to the stock market” in 2013, said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second- largest publicly traded bank by market value. “The U.S. economy continues to recover, and it will become much stronger next year.”
Benchmark 10-year yields held at 1.73 percent as of 7:02 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent security due in November 2022 changed hands at 99 1/32. The yield will climb past 2 percent next year, Shimazu said.
Japan’s 10-year rate was little changed at 0.795 percent. It was 0.8 percent earlier in Asia trading, matching yesterday’s high, which was the most since September.
Pending sales of U.S. existing homes climbed 1 percent in November from October for a third gain, according to a Bloomberg News survey of economists before the National Association of Realtors reports the figure at 10 a.m. New York time today. Purchases of new houses advanced to the highest level since April 2010, the Commerce Department reported yesterday.
Fiscal Cliff
Treasuries rose yesterday as investors sought safer assets after Senate Majority Leader Harry Reid said the budget stalemate that threatens to push the economy into recession probably won’t be resolved by year-end.
House Republican leaders announced the chamber will meet on Dec. 30 as lawmakers seek to resolve the impasse before at least $600 billion of spending cuts and tax increases begin in January.
Mizuho Asset Management Co., which correctly anticipated a gain in Treasuries this year when economists predicted losses, is sticking to its bullish view.
“Employment is still fragile,” said Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $38 billion and is part of Japan’s third-biggest bank. “Consumer spending may slow. Inflation is slow.”
Ten-year yields will fall to 1 percent in 12 months, Nakamura said. Mizuho Asset holds Treasuries due in seven to 30 years, he said, preferring longer maturities that will rally most if yields fall.
Unemployment Falls
The U.S. unemployment rate slid to 7.7 percent in November, the lowest level since 2008, the Labor Department reported this month. The average for the past decade is 6.7 percent.
Consumer prices increased 1.8 percent in November from the year before, Labor Department data show. The gauge has averaged 2.5 percent over the past 10 years, after rising to 14.8 percent in 1980.
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.46 percentage points from 1.95 percentage points at the close of 2011.
A decline in rates this year surprised analysts. Economists began 2012 with predictions that 10-year yields would advance to 2.5 percent by Dec. 31 from 1.88 percent at the end of 2011.
European Action
In Europe, Greece arranged the largest sovereign-debt restructuring in history in March, and the European Central Bank pledged in September to spend as much money as needed to restore confidence in the bond markets. Greek bonds almost doubled in price this year, making them the best performers among 144 debt indexes tracked by the Federation of Financial Analysts Societies and Bloomberg.
The Federal Reserve said Dec. 12 it’s concerned there won’t be sustained improvement in the labor market without support from the central bank.
Policy makers said they will buy $45 billion of Treasuries a month 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 Fed is also scooping up $40 billion of mortgage-backed securities each month.
Fed Operation
The central bank plans to snap up as much as $5.25 billion of Treasuries maturing from February 2021 to November 2022 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 under a program scheduled to end this month.
Ten-year yields will climb to 2.17 percent by the close of 2013, according to a Bloomberg survey of economists. An investor who bought today would lose 1.7 percent if the forecast is correct, according to data compiled by Bloomberg.
At the same time, economists are trimming their predictions for how far yields will rise. A Bloomberg survey in April showed a median prediction of 3 percent by the close of 2013.
The figures show yields will hold below the average over the past decade of 3.66 percent.
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
