BLBG:Treasuries Are Poised for Biggest Weekly Gain in 2013
Treasury 10-year notes rose for a third day as efforts to trim the European Union budget added to concern the region’s economy will struggle to expand, boosting demand for safer assets.
Benchmark 10-year yields were set for their biggest weekly decline in three months. European Central Bank President Mario Draghi signaled yesterday that a strengthening euro may hurt the currency bloc’s recovery. German exports grew less than forecast in December, a report showed. The U.S. trade deficit narrowed in December, economists said before the data is released today.
“Jitters in Europe have interrupted the rally in riskier assets and Treasuries are benefiting,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “There’s been no real domestic news in the U.S. The economy is going to strengthen this year, so any rally in Treasuries is going to be short-lived.”
The benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 1.94 percent at 10:26 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 gained 5/32, or $1.56 per $1,000 face amount, to 97 6/32. The yield has fallen eight basis points this week, the biggest drop since the period ended Nov. 9.
U.K. Prime Minister David Cameron demanded cuts in a proposed seven-year subsidies package of 973 billion euros ($1.3 trillion). The amount was trimmed once, from 1.047 trillion euros in November, and it is less than the 994 billion euros spent in the budget period expiring this year.
‘Too High’
“The numbers that were put forward were much too high,” Cameron told reporters yesterday. “They need to come down, and if they don’t come down, there won’t be a deal.”
Treasuries gained yesterday as investors sought U.S. debt after Draghi signaled concern the euro’s strength will hamper policy makers’ efforts to boost growth in the 17-nation region.
The euro has appreciated 5 percent against the dollar in the past three months to $1.3424.
“The exchange rate is not a policy target, but it is important for growth and price stability,” Draghi said at a press conference in Frankfurt yesterday after the ECB kept its benchmark interest rate at a record-low 0.75 percent. He also said risks to the economic outlook remain on the downside.
Germany’s exports gained 0.3 percent from November, when they fell 2.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 1.4 percent increase, according to the median of 15 estimates in a Bloomberg News survey.
Bond Returns
U.S. sovereign debt has returned 0.2 percent this month, according to a Bank of America Merrill Lynch index. It handed investors a 1 percent loss in January, the worst start to a year since 2009 on signs the U.S. economy is improving.
The U.S. trade deficit shrank to $46 billion in December from $48.7 billion the previous month, according to the median estimate of 73 analysts surveyed by Bloomberg News before the Commerce Department report today.
Separate data this month showed service industries, the largest component of the U.S. economy, expanded and consumer confidence unexpectedly increased.
The world’s biggest bond dealers are growing more reluctant to hold Treasuries, based on Federal Reserve data.
Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of the 21 primary dealers of U.S. government securities cut their holdings to $72 billion as of Jan. 30, the least since October, the Fed reported yesterday.
The figure compares with $146 billion on Dec. 19, the most in data compiled by Bloomberg dating back to 1997.
Output Gap
The U.S. economy isn’t living up to its potential and that is likely to see Treasuries keep rising, said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which oversees the equivalent of $35 billion.
“Yields may decline,” Nakamura said. “The negative output gap continues.” Ten-year rates may fall to a record low 1 percent this year, he said.
The difference between actual and potential gross domestic product, the so-called output gap, is negative 3.9 percentage points, according to data compiled by Bloomberg. The figures compares with negative 4.4 percentage points in the U.K. and negative 1.9 percentage points in Japan.
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
