BLBG: Treasury Futures Rise; Reports May Show Sales, Prices Declined
Treasury 10-year futures contracts rose for a fifth day, their longest rally in three weeks, before government reports this week that economists predict will show retail sales and consumer prices fell last month.
Ried, Thunberg & Co.’s weekly survey of fund managers showed investors became less bearish on Treasuries in the first part of January. Two-year yields were within 15 basis points of a record low set last month as the steepest U.S. job losses since 1945 spurred demand for the relative safety of government debt and sent global stocks lower.
“There’s an onslaught of negative economic data,” said Peter Jolly, the head of market research at NabCapital in Sydney, the investment-banking unit of Australia’s largest lender. “We expect yields to retest the lows they saw at the end of last year.”
The yield on 10-year futures contracts for March delivery fell one basis point to 3.01 percent at 12:23 p.m. in Singapore, based on electronic transactions at the Chicago Board of Trade. The price rose 1/8, or $1.25 per $1,000 face amount, to 125 21/32. A basis point is 0.01 percentage point.
Two-year notes yielded 0.75 percent, versus the low of 0.60 percent set Dec. 17.
Trading of Treasuries was closed in Japan for a holiday.
MSCI’s AC Asia Pacific excluding Japan Index of regional shares slid 2.6 percent, dropping for a fourth day.
Money Markets
Sales at U.S. retailers probably fell in December for a sixth month, dropping 1.2 percent, based on the median forecast in a Bloomberg News survey of economists before the Commerce Department reports the figures on Jan. 14.
Labor Department data on Jan. 16 will show consumer prices slid for a third month, a separate survey showed. The U.S. lost more jobs in 2008 than any year since 1945 as employers fired 524,000 people in December, the Labor Department said on Jan. 9.
Ried Thunberg’s index measuring investors’ outlook on Treasuries for the end of June rose to 39 in the seven days ended Jan. 9 from the record low of 35 the week before. The economic analysis firm in Jersey City, New Jersey, surveyed 29 fund managers controlling $1.37 trillion. A reading below 50 means investors expect prices to fall.
Yields indicate efforts by the government and central banks to undo a logjam in the credit markets are working, creating the risk that investors may favor corporate bonds over Treasuries.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 1.19 percentage points from 2008’s high of 4.64 percentage points in October.
Swaps Spread
The two-year interest rate swap spread shrank to 54.25 basis points, near the least since August 2007, when a global rout in credit began to escalate.
The spread, which is the difference between the rate to exchange floating for fixed interest payments for two years and comparable U.S. Treasury yields, is a gauge of investors’ perceptions of credit risk.
Swap rates are based on expectations for the London interbank offered rate, or Libor. Three-month Libor fell to 1.26 percent on Jan. 9, the lowest since 2004.
Barclays Capital Inc., one of the 17 primary dealers that are required to bid at U.S. debt auctions, is recommending high- grade bonds for the first half of 2009 including conventional and mortgage-backed debt sold by the so-called agencies. Fannie Mae and Freddie Mac, the two largest providers of mortgage financing, are examples of these agencies.
Inflation Bonds
“Policy measures to fix financial markets are off to a positive start,” Ajay Rajadhyaksha, Barclays Capital’s head of fixed-income strategy in New York, wrote in the company’s fixed income outlook for 2009 on Jan. 9.
Pacific Investment Management Co., Vanguard Group and Fifth Third Asset Management, which oversee a combined $1.8 trillion, are buying inflation-protected bonds on speculation efforts by policy makers to reignite the global economy will lead to faster increases in prices for goods and services.
TIPS due in 10 years yield 0.58 percentage point less than Treasuries, compared with an average of 2.11 percentage points since 2000. In November, TIPS yields rose as much as 0.08 percentage point above Treasuries.
“They’re breathtakingly cheap,” said Mitchell Stapley, who oversees $22 billion as chief fixed-income officer for Grand Rapids, Michigan-based Fifth Third. “This one’s going to take a while to come to fruition but I’m buying them so dirt cheap I’m willing to have a little patience.”
President-elect Barack Obama said reviving the U.S. economy will require scaling back on his campaign promises and personal sacrifice from all Americans, speaking on ABC’s “This Week” program broadcast yesterday.
Obama takes office Jan. 20 and is pressing Congress to act quickly on a two-year economic stimulus plan of about $775 billion after companies including Boeing Co., the world’s second- largest commercial-plane maker, announced job cuts last week.
