BLBG:Treasuries Rise for Fourth Day on Debt-Limit Talks
Treasuries rose for a fourth day, the longest stretch of gains since November, on concern political wrangling over the U.S. debt ceiling will curb economic growth, fueling demand for the safety of debt.
The Federal Reserve plans to purchase as much as $1.75 billion of Treasuries maturing from February 2036 to November 2042 today, part of its bond-buying program to spur the economy. Fed Bank of Boston President Eric Rosengren said policy makers may enlarge their $85 billion monthly purchases of debt to meet their twin goals of stable prices and full employment.
“We will have a serious problem next month” if politicians don’t raise the borrowing limit, said Kim Youngsung, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $106.4 billion in assets. “It will have a negative impact on the global economy. We’ve seen yields go down over the past couple of days. I hope the problem will be solved, and yields will go up again.”
The 10-year rate declined two basis points to 1.82 percent as of 5:35 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in November 2022 rose 5/32, or $1.56 per $1,000 face amount, to 98 9/32. The yield dropped six basis points, or 0.06 percentage point, over the past three days.
Japan’s 10-year rate slid two basis points to 0.75 percent today, the lowest level in almost a month.
Ten-year yields will increase to 2.27 percent in the U.S. and to 1 percent in Japan by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.
Government Payments
The U.S. government makes about 80 million payments each month, including for Social Security, veterans’ benefits, defense contractors, law enforcement and income tax refunds.
The Treasury uses emergency measures to delay a default as the total value of debt nears the ceiling. Exhausting the extraordinary steps without raising the limit would require the Treasury to fund the government with cash on hand, which wouldn’t be adequate “for any meaningful length of time,” according to Treasury Secretary Timothy F. Geithner.
Congress has raised or revised the limit 79 times.
Fitch Ratings said yesterday its AAA credit ranking on the U.S., France and the U.K. will probably come under pressure this year because of the slow pace of economic expansion and high debt levels. Moody’s Investors Service warned Jan. 2 that further measures to control the deficit were needed to support the U.S.’s top Aaa standing.
While Standard & Poor’s stripped the U.S. of its AAA standing in 2011, demand for Treasuries continued in 2012, sending the 10-year rate to a record low of 1.38 percent in July.
Global Growth
The World Bank yesterday cut its global growth forecast for this year as austerity measures, unemployment and low business confidence weigh on economies in developed nations.
The Washington-based bank projects the world economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012. It halved its forecast for Japan, cut the U.S. projection by 0.5 percentage point and predicted a second year of contraction in the euro region.
Central bank and government reports today will show U.S. industrial production rose in December while consumer prices held unchanged, based on Bloomberg News surveys of economists.
The Treasury Department is also scheduled to report on foreign ownership of U.S. securities for November.
Treasury Holdings
Japan raised its holdings of U.S. debt in 2012 by 7.2 percent to $1.13 trillion as of October and is on pace to again become the largest U.S. creditor since slipping to second place in September 2008. China owns $1.16 trillion.
The Fed is buying government and mortgage debt each month to spur the economy by putting downward pressure on interest rates.
“I think there is the capacity to enlarge it if that were to become necessary,” the Boston Fed’s Rosengren said yesterday in a telephone interview with Bloomberg News.
Fed Bank of Philadelphia President Charles Plosser said he sees medium-to-longer-term inflation risks “given the current stance and anticipated path of monetary policy,” in a speech yesterday in Rochester, New York.
Rosengren votes on monetary policy this year, while Plosser doesn’t.
The three-day rally has made U.S. government securities the most expensive in two weeks. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.76 percent yesterday in New York the least since Jan. 1.
A negative reading indicates investors are willing to accept yields below what’s considered fair value.
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
