BLBG:Treasuries Hold Drop Before Bond Sales, Retail Sales Data
Treasuries held a decline from yesterday ahead of the U.S. government’s sales of coupon-bearing securities starting today.
Ten-year bond yields remained higher before a report tomorrow that may show retail sales in the world’s biggest economy climbed for a third-straight month, damping demand for the relative safety of U.S. debt. The gap between 5- and 30-year Treasury yields was near the widest in more than four months as President Barack Obama prepares to deliver his State of the Union address today, in which he is expected to highlight plans to boost jobs and bolster growth.
“Confidence in the U.S. recovery should remain solid,” said Adam Donaldson, Sydney-based head of debt research at Commonwealth Bank of Australia, the nation’s largest lender. “We should see the investment cycle coming through and underpinning growth, and that will eventually take Treasury yields higher.”
The U.S. 10-year yield was little changed at 1.96 percent as of 6:42 a.m. in London from yesterday, according to Bloomberg Bond Trader prices. Donaldson expects the benchmark yield to reach 2.1 percent by year-end. The price of the 1.625 percent note due in November 2022 was at 97 1/32.
Japan’s 10-year rate was unchanged at 0.75 percent after falling 1 1/2 basis points, or 0.015 percentage point, to that level last week.
The U.S. Treasury Department will sell $32 billion of 3- year notes today, $24 billion in 10-year debt tomorrow and $16 billion in 30-year bonds on Feb. 14.
Retail Gains
The Commerce Department will probably say tomorrow retail sales climbed 0.1 percent last month after a 0.5 percent advance in December, according to the median forecast of economists surveyed by Bloomberg News.
President Obama will deliver his State of the Union speech at 9 p.m. tonight in Washington. “I’m going to be talking about making sure that we’re focused on job creation here in the United States of America,” Obama said last week to House Democrats at a meeting in Virginia.
The yield difference between 5-year Treasuries and their 30-year counterparts was 232 basis points after climbing to 235 on Feb. 5, the most since Sept. 14. A yield curve plots the rates of bonds of the same quality and different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated bonds rise, or both happen simultaneously.
Treasuries handed investors a 0.2 percent return this month after falling 1 percent last month in the worst start to a year since 2009, a Bank of America Merrill Lynch index showed.
Nuclear Test
Gains in Treasury yields were capped after North Korea said it conducted its third nuclear test today, helping reduce demand for riskier assets. South Korea’s benchmark Kospi Index of shares lost 0.3 percent and futures on the Standard & Poor’s 500 Index declined 0.2 percent.
Markets in Hong Kong, China, Singapore, Malaysia and Taiwan are closed for Lunar New Year holidays today.
Bill Gross, who manages the world’s biggest bond portfolio at Pacific Investment Management Co., raised the percentage of Treasuries held in his flagship $285.6 billion Total Return Fund. Gross boosted the proportion of U.S. government and Treasury debt to 30 percent in January, the most since July, according to a report on the company’s website.
Continued Accommodation
Federal Reserve Vice Chairman Janet Yellen signaled in comments yesterday that the central bank may keep borrowing costs near zero after its asset-buying program ends, even after hitting its targets for unemployment or inflation.
Fed Chairman Ben S. Bernanke indicated at the conclusion of a two-day meeting last month that he isn’t close to easing up on $85 billion in monthly bond purchases in the third round of a policy known as quantitative easing. Bernanke and his fellow committee members also left unchanged their statement that they plan to hold the target interest rate near zero as long as unemployment remains above 6.5 percent and inflation remains no more than 2.5 percent.
A Feb. 1 report showed the jobless rate climbed to 7.9 percent last month. Consumer prices rose 1.7 percent in December from a year earlier, the slowest pace in five months, the Labor Department said Jan. 16.
“Taking into account the fragile economic situation, the Fed has to continue its accommodative policy,” said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which oversees the equivalent of $35 billion. “U.S. Treasury yields will decline this year,” said Nakamura, who sees the 10-year rate at 1.2 percent by Dec. 31.
To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
