BLBG:Treasuries Head for Steepest Loss in Three Years on Fed Outlook
Treasuries headed for their steepest monthly loss in three years before the U.S. sells $29 billion of seven-year notes today.
Treasuries tumbled 1.8 percent in May as of yesterday, the most since December 2009, according to Bank of America Merrill Lynch indexes. U.S. government securities slid after Federal Reserve Chairman Ben S. Bernanke said last week the central bank could cut the pace of its debt purchases if policy makers are confident that improvement in the economy will be sustained.
“It’s not a time to get into the U.S. Treasury market,” said Kazuyuki Takigawa, who oversees $6 billion of non-yen bonds at Resona Bank Ltd. in Tokyo. “The U.S. economic figures in the last month have been in good shape.” The Fed could start paring its bond-buying program at its September meeting, he said.
Benchmark 10-year yields were little changed at 2.12 percent as of 8:08 a.m. in London, according to Bloomberg Bond Trader data. The 1.75 percent note due in May 2023 was priced at 96 22/32.
Japan’s 10-year rate slid five basis points to 0.89 percent, headed for the first decline in three days. A basis point is 0.01 percentage point.
Securities in the Bank of America Merrill Lynch Global Broad Market Index have fallen 1.5 percent in May, poised for the steepest loss since April 2004.
Tapering Possible
The Fed buys $85 billion of Treasury and mortgage debt a month to support the economy by putting downward pressure on interest rates. Bernanke said last week the Fed could “take a step down in our pace of purchases” in the “next few meetings,” in testimony to lawmakers.
Data today will show U.S. gross domestic product grew 2.5 percent in the first quarter, the same as the government estimated a month ago, and pending home sales rose in April from a year earlier, according to Bloomberg News surveys of economists.
The last sale of seven-year notes on April 25 drew bids for 2.71 times the amount of debt available. The average for the past 10 auctions of this maturity is 2.67.
A $35 billion sale of five-year notes yesterday attracted the most interest from non-primary dealer investors since at least 2003 after this month’s increase in yield bolstered demand.
Indirect and direct bidders combined to win about 67 percent of the debt, compared with an average of about 57 percent at the 10 previous auctions. The notes sold at what is known as a high yield of 1.045 percent, the most for the security at an auction since October 2011.
Demand fell at a two-year auction May 28.
Volatility Climbs
Treasury volatility as measured by the Bank of America Merrill Lynch MOVE index rose to 81.22 yesterday, the highest level in almost a year.
Treasury yields show inflation expectations fell to a nine-month low.
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, narrowed to 2.20 percentage points today, the smallest gap since August.
“Treasuries are relatively cheap,” said Kim Youngsung, the head of fixed-income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $100 billion in assets. “I don’t think the U.S. is going to have a high inflation rate.”
The Fed’s preferred measure of inflation, the personal consumption expenditures deflator, rose 0.8 percent in April from 12 months earlier, based on a Bloomberg survey of economists before the Commerce Department reports the figure tomorrow. It would be the smallest increase since October 2009.
Personal spending was unchanged in April from March, the report may also show, according to the surveys.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
