BLBG:Treasuries Are World’s Best Performers Thanks to Dollar
Treasuries were the world’s best- performing bonds after accounting for a rallying dollar, underscoring demand for the relative safety of U.S. assets.
Government securities maturing in more than a year returned 0.5 percent in the past month, reflecting both changes in the bond prices and in currencies, according to data compiled by Bloomberg and the European Federation of Financial Bank of Analysts Societies. It was the biggest gain of 26 bond indexes around the world. A private report today may show U.S. service industries expanded for a 38th month, economists said.
Benchmark 10-year yields were little changed at 1.88 percent at 6:31 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2 percent note due February 2023 was 101 2/32. The yield was within half a percentage point of the record low set last year, held in check as the Federal Reserve buys bonds to put downward pressure on borrowing costs.
“The U.S. economy is better than Europe or Japan,” said Hajime Nagata, who helps oversee the equivalent of $110.4 billion as an investor in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co., the nation’s second-biggest life insurer. “In spite of the economy improving, the central bank wants to keep interest rates at a very low level.”
Intercontinental Exchange Inc.’s Dollar Index (DXY), which tracks the currency against those of six U.S. trading partners, climbed to a six-month high on March 1.
Bond Rankings
Without accounting for currency changes, bonds returned 2.2 percent in Spain and 2.1 percent in Ireland for the best performances in the past month, based on the indexes. The U.S. ranked 16th.
Japan’s 10-year yield climbed 4 basis points, or 0.04 percentage point, to 0.645 percent. It was as low as 0.585 percent earlier, a level not seen since 2003, on speculation former Finance Ministry official Haruhiko Kuroda will become the next central bank governor and increase bond purchases to combat deflation.
The Reserve Bank of Australia held its benchmark interest rate at 3 percent.
An inconclusive election in Italy this month left Europe’s third-largest economy in political deadlock, helping boost demand for the relative safety of Treasuries.
The Fed is purchasing $85 billion of Treasury and mortgage debt a month as part of its efforts to spur economic growth.
Fed Vice Chairman Janet Yellen said the central bank should continue its monthly bond buying while tracking the costs of the program, speaking yesterday in Washington. Fed Chairman Ben S. Bernanke in congressional testimony last week defended the Fed’s bond purchases, saying the benefits of reducing borrowing costs and fueling growth outweigh any potential costs.
The central bank has kept its benchmark target for overnight lending in a range of zero to 0.25 percent since 2008.
Inflation Outlook
Vincent Reinhart, chief U.S. economist at Morgan Stanley and the Fed’s former director of monetary affairs, said the central bank is seeking to increase costs in the economy.
“They said they want inflation,” Reinhart said yesterday on Bloomberg Television’s “Surveillance” program. “They’ll get it,” he said, reiterating a warning he made last year.
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.55 percentage points. The average over the past decade was 2.2 percentage points.
Economic Data
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which cover almost 90 percent of the economy, was probably 55 in February, versus 55.2 in January, based on a Bloomberg News survey of economists. Readings greater than 50 signal expansion in the report, which is scheduled for 10 a.m. New York time today.
U.S. employers added 160,000 jobs in February, economists in a Bloomberg survey forecast before the Labor Department reports the data March 8. Payrolls grew by 157,000 in January. Unemployment stayed at 7.9 percent, economists estimated.
In a bullish sign for bonds, Bank of America Merrill Lynch’s MOVE Index, which tracks the outlook for swings in U.S. government debt rates, shows investors don’t anticipate an increase in price changes.
The index fell to 53.9 yesterday, the lowest level since Jan. 23. The gauge has averaged 66.6 percent over the past year.
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
