BLBG:Treasuries Little Changed Before U.S. Jobless Claims
Treasuries advanced, with 10-year note yields approaching the lowest level in three weeks, before a government report that analysts said will show initial jobless claims increased last week.
Treasuries rose yesterday after lawmakers voted to suspend the U.S. borrowing limit, a step toward averting a delay in payments that threatened the economy. Treasury Inflation Protected Securities are lagging behind conventional government debt for a third month as the U.S. prepares to sell $15 billion of 10-year TIPS today. HSBC Holdings Plc is increasing the proportion of TIPS and five-year Treasury notes in its portfolio, the bank said today in an e-mailed report.
“Economic surprise in the U.S. has been trending lower in general and that’s weighing on bond yields a bit,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “We are a little bit rangebound. We are looking for yields to go up a bit, but not in a substantial selloff.”
Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 1.81 percent as of 7:03 a.m. New York time, according to Bloomberg Bond Trader prices. The price of the 1.625 percent note due in November 2022 rose 1/8, or $1.25 per $1,000 face amount, to 98 11/32. The rate dropped to 1.80 percent on Jan. 16, the lowest since Jan. 2.
The 30-year bond yield was one basis point lower at 3.01 percent after falling five basis points in the past three days.
The yield on 10-year notes will rise to 2.25 percent by the end of 2013, Von Mehren predicted, citing Danske’s estimates.
Jobless Claims
Initial claims for jobless insurance increased to 355,000 last week, from 335,000 a week earlier, according to a Bloomberg News survey of economists before the Labor Department reports the figure at 8:30 a.m. New York time today. The Conference Board’s index of leading economic indicators, set for release at 10 a.m., rose in December, a separate survey showed.
Inflation notes have handed investors a 0.5 percent loss since the end of October, versus a 0.2 percent slide for the broader market, Bank of America Merrill Lynch data show.
HSBC is increasing its holdings of TIPS in its so-called strategic portfolio to 16 percent from 13 percent, strategists led by Fredrik Nerbrand, the bank’s London-based global head of asset allocation, wrote in a report today. Holdings of five-year Treasuries have been increased by six percentage points to 16 percent, while the bank is decreasing the proportion of 10-year notes to 7 percent from 10 percent.
‘Inflation Hedge’
“We are shifting our inflation hedge from gold into TIPS,” the strategists wrote. “The probability of a Eurozone breakup has fallen and the most apocalyptic of U.S. fiscal outlooks have been avoided.”
U.S. 10-year TIPS yielded minus 0.77 percent. The last six 10-year TIPS sales since January 2012 have drawn negative rates.
“Inflation isn’t a concern now,” said Shinji Kunibe, the chief portfolio manager for fixed-income investment at Nissay Asset Management Corp. in Tokyo, which oversees the equivalent of $58 billion. “The debt-ceiling problem was merely postponed, and fiscal tightening will put downward pressure on the economy” weighing on bond rates, he said.
The House of Representatives voted yesterday to suspend the borrowing limit. The measure will go to the Senate, where Majority Leader Harry Reid said lawmakers will pass the bill unchanged and send it to President Barack Obama.
U.S. core consumer prices, which exclude volatile food and energy costs, increased 1.9 percent in December from a year earlier, based on the most recent data from the Labor Department. The average over the past 20 years is 2.3 percent.
Inflation Expectations
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt is 2.53 percentage points, after widening to 2.55 percentage points earlier this week, the most since November. The average over the past decade was 2.19 percentage points.
The Federal Reserve is purchasing $85 billion of government and mortgage debt each month, seeking to put downward pressure on borrowing costs. It plans to buy as much as $3.5 billion of Treasuries maturing from February 2020 to November 2022 today, according to the Fed Bank of New York website.
The Bank of Japan (8301) is purchasing bonds and other assets, and it plans to follow the Fed by switching to open-ended debt purchases next year. The European Central Bank has expressed a willingness to buy the bonds of nations that ask for aid.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
