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 a week on speculation a disagreement among U.S. political leaders over the nation’s debt limit will slow the world’s biggest economy, underpinning demand for the safest assets. Treasuries also gained before a government report today that economists said will show growth in retail sales slowed in December.
“If we really see this debt ceiling discussion escalating it would be something that is negative for risk sentiment and positive for Treasuries,” said Michael Markovich, head of global interest-rates research at Credit Suisse Group AG in Zurich. “U.S. yields have increased too far relative to fundamentals and we see some room for a correction lower.”
The 10-year yield declined two basis points, or 0.02 percentage point, to 1.82 percent at 7:10 a.m. New York time, the lowest level since Jan. 3, according to Bloomberg Bond Trader prices. The 1.625 percent note due November 2022 gained 7/32, or $2.19 per $1,000 face amount, to 98 7/32.
Thirty-year yields fell two basis points to 3.01 percent. A decline in 30-year rates below 3 percent may be the trigger for 10-year yields to drop to 1.75 percent, Credit Suisse’s Markovich said.
Default Risk
“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.
Growth in U.S. retail sales slowed to 0.2 percent in December from 0.3 percent 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 today will show New York-area manufacturing stabilized and wholesale costs were contained, based on responses from economists.
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.
The U.S. jobless rate was 7.8 percent in December, compared with the average of 6 percent for the past two decades.
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.
Higher Interest
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: Neal Armstrong in London at narmstrong8@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
