BLBG:Treasuries Gain for Third Day on Debt-Ceiling Debate
U.S government notes rose for a third day as Treasury Secretary Timothy F. Geithner said a failure to increase the debt ceiling by early March would “impose severe economic hardship.”
Benchmark 10-year yields dropped to the lowest level in more than a week on speculation a disagreement among U.S. political leaders over the nation’s debt limit will slow the world’s biggest economy. A government report today will show retail sales climbed in December, according to a Bloomberg News survey of economists.
“The debt ceiling is creating a short-term flight to quality,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank. “The U.S. economy is recovering. Investors should put money into riskier assets.”
The 10-year yield declined one basis point, or 0.01 percentage point, to 1.83 percent as of 8:40 a.m. in London after falling to 1.82 percent, the lowest level since Jan. 3, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 rose 1/8, or $1.25 per $1,000 face amount, to 98 5/32.
“Congress should act as early as possible to extend normal borrowing authority in order to avoid the risk of default and any interruption in payments,” Geithner wrote in a letter to House Speaker John Boehner.
Federal Reserve Chairman Ben S. Bernanke, speaking yesterday at the University of Michigan in Ann Arbor, said the economy is moving “in the right direction.” He also said he would like a stronger U.S. labor market.
Jobless Rate
The U.S. jobless rate was 7.8 percent in December, compared with the average of 6 percent for the past two decades.
U.S. retail sales rose 0.2 percent in December, following a 0.3 percent gain in November, according to the median forecast of 83 economists surveyed by Bloomberg News before the Commerce Department releases the data at 8:30 a.m. New York time.
Separate reports will show New York-area manufacturing stabilized and wholesale costs were contained, based on responses from economists.
Treasuries have handed investors a loss in 2013. U.S. government bonds dropped 0.4 percent in the first two weeks of January, Bank of America Merrill Lynch indexes show. Treasuries have declined 0.8 percent over the past six months, while investment-grade and high-yield debt returned 4.6 percent.
Corporate Debt
Investment-grade corporate bonds have higher interest payments than Treasuries, which will cushion losses if rates rise, said Kathy A. Jones, a fixed-income strategist at Charles Schwab Corp., which has about $1.9 trillion in client assets.
“The credit profile of the U.S. corporate sector appears to be in solid shape,” Jones, who is based in New York, said in a video on the company’s website yesterday.
Investors considering “riskier sectors” such as high- yield or emerging-market debt should limit holdings to 20 percent of their fixed-income portfolios, Jones said. The bonds can have low credit quality, be volatile and difficult to trade, she said.
The Federal Reserve plans to buy as much as $1 billion of Treasuries maturing from February 2023 to February 2031 today, according to the Fed Bank of New York website.
The purchases are part of the $85 billion of government and mortgage debt the central bank is buying each month to spur the economy by putting downward pressure on interest rates.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
