BLBG:Treasuries Advance as Stocks Slide Before U.S. Spending Data
Treasury 10-year notes rose, with yields paring the biggest monthly gain since December 2010, amid speculation a report will show U.S. consumer spending stagnated, damping bets the Federal Reserve will taper monetary stimulus.
Benchmark yields decreased for a third consecutive day as European stocks declined and a report showed the region’s jobless rate climbed to a record in April, fueling demand for safer assets. U.S. government debt securities fell 1.8 percent in May as of yesterday, headed for the steepest monthly loss in three years, according to Bank of America Merrill Lynch indexes.
“Yields are coming down again because the risk assets are under pressure,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “You need to see sustained positive numbers out of the U.S. to expect them to start exiting the quantitative easing program.”
Treasury 10-year yields fell four basis points, or 0.04 percentage point, to 2.07 percent at 8:03 a.m. New York time, according to Bloomberg Bond Trader data. The 1.75 percent note due in May 2023 gained 11/32 or $3.44 per $1,000 face amount, to 97 3/32. The yield has climbed 41 basis points since April 30, the most since jumping 50 basis points in December 2010.
The yield will probably fall to 2 percent in the next 12 months, Credit Suisse’s Rousing said.
Europe’s Stoxx 600 index of shares slid 0.7 percent, cutting this month’s increase to 1.6 percent. Futures (SPA) on the Standard & Poor’s 500 index declined 0.5 percent.
Spending Stagnates
Consumer purchases in the U.S. were unchanged last month, after a 0.2 percent increase in March, the Commerce Department will say today, according to the median prediction of 79 economists surveyed by Bloomberg. Personal income rose 0.1 percent in April from March, when it gained 0.2 percent, another report will show, according to a separate survey.
Signs that the recovery is still uneven will probably prompt the Fed to keep buying $85 billion of Treasury and mortgage debt a month to support the economy.
Fed Chairman Ben S. Bernanke said last week the central bank could “take a step down in our pace of purchases” in the “next few meetings,” in testimony to lawmakers. That prompted a selloff that pushed 10-year yields to 2.23 percent on May 29, the highest level since April 5, 2012. Policy makers meet next on June 18-19.
The central bank plans to purchase as much as $5.25 billion of securities maturing between May 2017 and February 2018 today, according to the New York Fed’s website.
“The market is overpricing the prospect of a tapering of quantitative easing,” Pierre Bose, head of fixed income at Coutts & Co. Ltd. in Zurich, wrote in a client note dated yesterday. “We remain holders of Treasuries pending further developments.”
Volatility Rises
Treasury volatility as measured by the Merrill Lynch MOVE index climbed to 81.22 on May 29 as yields surged, marking the highest level since June. It was at 77.41 yesterday.
The euro-area unemployment rate rose to 12.2 percent from 12.1 percent in March, the European Union’s statistics office in Luxembourg said. That’s in line with the median of 37 economists’ estimates in a Bloomberg News survey. The European Central Bank projects that the euro-area economy will shrink 0.5 percent this year.
Stock declines that pushed Japan’s Nikkei 225 Stock Average down 5.2 percent yesterday, the most in a week, may be a sign of things to come in the weeks ahead, said Will Tseng, a bond trader in Taipei at Mirae Asset Global Investments, which oversees $50 billion.
“When equity investors begin to take profits, it will cause cash to go into the bond market,” he said. Ten-year yields will probably stay under 2.4 percent in June, he said.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
