Treasuries fell, with rates approaching the Standard & Poor’s 500 Index dividend yield, narrowing the difference between them to the smallest amount in four months, on signs of improvement in the U.S. economy.
Benchmark 10-year Treasury rates were 16 basis points below the S&P 500 yield, a gap not seen since Sept. 14. The U.S. rate advanced to 2 percent yesterday for the first time since April. Federal Reserve policy makers begin a two-day meeting today. The U.S. is scheduled to sell $35 billion of five-year debt, the second of three note sales this week totaling $99 billion.
“The Treasury yield is too low,” said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has about $62.9 billion in assets. “The U.S. economic situation is good, better than some people expected.” Ten-year rates need to rise another 20 basis points to 30 basis points before he’ll consider buying, Suzuki said.
The yield rose 2 basis points, or 0.02 percentage point, to 1.98 percent as of 1:25 p.m. in Tokyo, according to Bloomberg Bond Trader data. That compares with the record low of 1.38 percent set last year and the average of 3.64 percent for the past decade. The price of the 1.625 percent security due in November 2022 fell 5/32, or $1.56 per $1,000 face amount, to 96 27/32 today.
The S&P 500 dividend yield has dropped to 2.14 percent from last year’s high of 2.29 percent in November.
Japan’s benchmark 10-year bond rate rose 2 1/2 basis points to 0.77 percent. The extra yield investors demand to buy 10-year debt in the U.S. instead of Japan widened to 122 basis points on Jan. 25, the most since April.
Durable Goods
U.S. government debt fell yesterday as orders for durable goods in the U.S. rose 4.6 percent in December, after a 0.7 percent gain the prior month. The median forecast of 76 economists surveyed by Bloomberg News was that the Commerce Department report in Washington would show a 2 percent gain.
Employers added 160,000 workers in January, after a 155,000 increase in December, a separate survey showed before a Feb. 1 report from the Labor Department. Other data this week may show manufacturing is stabilizing and that consumer spending increased, based on responses from economists.
Fed policy makers said they may end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid- or end-of-year finish, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering.
Treasuries have handed investors a 1 percent loss in January, the worst monthly performance since March, according to Bank of America Merrill Lynch indexes.
To contact the reporters 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
