BLBG: Treasuries Near Most Expensive Since January Before Jobs
Treasuries were the most expensive this year as comments from three Federal Reserve officials helped damp speculation the central bank will begin curbing its bond purchases soon.
The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, was negative 0.83 percent April 12. It was the lowest level since Dec. 14. The figure was negative 0.82 percent today. Negative readings indicate investors are willing to accept yields below what’s considered fair value. Fed Bank Presidents Charles Evans, Narayana Kocherlakota and Dennis Lockhart all spoke in favor of the bank’s effort to support the economy by buying bonds.
“The economic data are not as good as the market expected,” said Hajime Nagata, who helps oversee the equivalent of $104.6 billion as an investor in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co. “I don’t think I can say they need to cut back on their purchases.”
Benchmark 10-year yields were little changed today at 1.73 percent as of 7:52 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2 percent note due February 2023 was 102 14/32.
Japan’s 10-year rate rose two basis points, or 0.02 percentage point, to 0.64 percent. It has climbed from a record low of 0.315 percent set April 5.
The Fed buys $85 billion of Treasury and mortgage bonds a month to support growth by putting downward pressure on borrowing costs.
Treasuries Underperform
Treasuries have returned 0.5 percent this year through April 12, versus 1.7 percent for Japanese bonds, according to Bank of America Merrill Lynch indexes. An index of sovereign securities around the world gained 1.2 percent, based on the data.
The MSCI All-Country World Index (MXWD) of stocks gained 8 percent in the same period, including reinvested dividends, according to data compiled by Bloomberg.
Evans, president of the Chicago Fed, said the U.S. central bank’s policy isn’t accommodative enough.
Kocherlakota, the head of the Fed Bank of Minnesota, said he would like to see more accommodation. Lockhart, president of the Fed Bank of Atlanta, said he supports of the Fed’s accommodative policies. All three spoke April 13.
Evans votes on monetary policy this year while Kocherlakota and Lockhart don’t. The comments helped ease concern the Fed may scale back its purchases, after minutes of the central bank’s March 19-20 meeting released last week showed several officials favored stopping the record stimulus by year-end.
U.S. Economy
U.S. employment and manufacturing grew less in March than economists surveyed by Bloomberg News forecast, while retail sales dropped, government and industry reports this month showed.
China’s gross domestic product grew 7.7 percent in the first quarter from a year earlier, the National Bureau of Statistics said in Beijing today. The figure is less than 8 percent projected in a Bloomberg survey of analysts and 7.9 percent expansion in the fourth quarter.
International purchases of U.S. bonds, stocks and other financial assets quickened in February after slowing in January, based on a Bloomberg survey of economists before the Treasury Department report at 9 a.m. in Washington.
Net buying of long-term financial assets totaled $40 billion, versus $25.7 billion in January and 64.2 billion in December, based on responses from economists.
Housing Market
The Treasuries rally only has a little further to go, said Genzo Kimura, who helps oversee the equivalent of $42.8 billion as a bond investor in Tokyo at Sumitomo Mitsui Trust Asset Management Co., part of Japan’s fourth-largest bank. Ten-year yields will probably have a tough time falling through 1.7 percent, he said.
“It is true that the U.S. economy is not as strong as we expected,” Kimura said. “On the other hand, the housing market is still doing well.”
U.S. housing starts rose to a 930,000 annualized rate in March from 917,000 in February, according to a Bloomberg survey of economists the Commerce Department report the figure tomorrow. It would be the second-fastest pace since 2008.
Figures from the Fed tomorrow may show industrial production rose in March, based on responses from economists.
Even after the Fed added more than $2.3 trillion into the financial system since 2008, inflation is under control.
Selling TIPS
Companies from U.S. Bancorp to Federated Investments that had been buying Treasury Inflation Protected Securities during the Fed’s recent efforts to add cash to the economy are now selling.
Commodity prices are down and wages have grown just 1.9 percent on average since 2009, below the 3.1 percent in the prior three years, government data show.
“With such weak labor markets, flat income growth and flat wages, and commodities weak, we just won’t see the inflation that the TIPS market is pricing in,” Dan Heckman, a fixed- income strategist at the U.S. Bank Wealth Management unit of U.S. Bancorp, which manages $110 billion, said in telephone interview April 9.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
