BLBG:Treasuries Are World’s Best Performers on Fed Outlook
Treasuries were among the world’s best-performing bonds in the past month after a smaller-than- forecast job gain in March indicated the Federal Reserve will keep purchasing debt to spur the economy.
U.S. government securities due in 10 years and longer returned 6.2 percent from a month ago, according to indexes compiled by Bloomberg and the European Federation of Financial Bank of Analysts Societies. That was the third biggest gain across 144 indexes covering bond markets worldwide. Bank of Japan Governor Haruhiko Kuroda said last week he was increasing debt purchases to 7.5 trillion yen ($76.1 billion) a month to battle deflation.
“Payrolls was a really bad number,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “The worse data would point toward lower yields, and there was also the news out of the Bank of Japan. It makes the U.S. look very attractive, although we are at low yields.”
The benchmark 10-year Treasury yield was little changed at 1.72 percent at 6:01 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note maturing in February 2023 traded at 102 17/32. The yield fell to 1.68 percent on April 5, the lowest level since Dec. 12.
The increase of 88,000 U.S. jobs in March, smaller than the most-pessimistic forecast in a Bloomberg News survey of economists, gives Fed Chairman Ben S. Bernanke and his colleagues reason to press on with $85 billion in monthly bond purchases aimed at reducing unemployment.
Jobless Rate
The jobless rate fell to a four-year low of 7.6 percent from 7.7 percent, while average hourly earnings were unchanged, the Labor Department said on April 5.
Retail sales stagnated in March, after gaining 1.1 percent in February, based on a Bloomberg survey before the Commerce Department reports the figure on April 12.
The Federal Open Market Committee said in a March 20 statement it will continue its asset purchases until the labor market improves “substantially.”
“The slowdown in U.S. employment is giving people reason to buy Treasuries,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank by assets. “It favors continuing the asset-purchase program.”
Bernanke is scheduled to speak at 7:15 p.m. in Atlanta at a conference on “Maintaining Financial Stability.”
Inflation Outlook
Treasury yields show inflation expectations fell to the lowest level since January.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, shrank to as little as 2.46 percentage points, the narrowest since Jan. 2.
Ten-year Treasury yields fell below their 200-day moving average of 1.74 percent on April 5. The low of 1.68 percent set on that day should cap further declines in yield in the near term, Bank of Montreal’s Collins said.
Japan’s biggest investors are shunning their government’s bonds in favor of Treasuries, endorsing the policies of the Bank of Japan (8301)’s Kuroda to spark inflation and aiding Bernanke’s efforts to spur U.S. economic growth.
Buying Treasuries
Mizuho Asset Management Co., a unit of Japan’s third- largest bank, is buying Treasuries, as are Sumitomo Mitsui Trust Asset Management Co. and Mitsubishi UFJ Asset Management Co., which together oversee the equivalent of $138.3 billion. The securities have become appealing as rising Japanese bond prices pushed yields below those of U.S. debt by the most since 2011.
Heightened demand from Japan for long-term Treasuries is helping the Fed keep borrowing costs low to bolster growth and reduce unemployment. The flow into Treasuries weakens the yen as Japanese investors sell the currency to buy dollars, aiding Kuroda’s goal of pulling his nation out of its third recession since 2008 and ending 15 years of deflation.
“We bought in the very long end,” Akira Takei, the manager of international bond investment for Mizuho in Tokyo, said in telephone interviews March 27 and April 2, after buying 30-year Treasuries, or so-called long bonds. “When I visit clients, instead of being confined to JGBs, they’re thinking about putting their money abroad.”
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
