BLBG: Treasuries Fall as U.S. Economic Plans May Spur Larger Auctions
Treasuries fell, led by 30-year bonds, on speculation government efforts to combat the U.S. recession will lead to larger debt sales and increased demand for corporate debt.
Thirty-year Treasuries have tumbled 5.6 percent so far in 2009, the most of any maturity, as traders bet the U.S. will increase its long-term debt auctions to fund government aid plans. U.S. corporate securities returned 2.6 percent, according to indexes compiled by Merrill Lynch & Co.
“Issuance of government bonds will rapidly increase in the second half,” said Hideo Shimomura, chief fund investor at Mitsubishi UFJ Asset Management Co. in Tokyo. Deflation may push bonds up for a few months, though Treasuries will slide later in 2009 as borrowing increases, said Shimomura, who oversees $4 billion in non-yen bonds at the unit of Japan’s largest bank.
The 30-year bond yield rose two basis points to 3.02 percent as of 7:43 a.m. in London, according to BGCantor Market Data. The price of the 4.5 percent security maturing in May 2038 declined 1/2, or $5 per $1,000 face amount, to 128 22/32.
Yields on 10-year notes, used as a benchmark to set corporate and government borrowing costs, rose three basis points to 2.32 percent. The figure will climb to 2.8 percent by Dec. 31, Shimomura said. A Bloomberg survey of 58 economists projects 3.07 percent by year-end, with the most recent forecasts given the heaviest weightings.
Ten-year notes slid for the first time in five days, moving in the opposite direction to Asian stocks. MSCI’s Asia Pacific index of regional shares rose 1 percent, halting a four-day loss.
Obama’s Economic Plan
President-elect Barack Obama lobbied senators yesterday to support his economic proposals and to tap the second half of a $700 billion financial-markets rescue fund approved under President George W. Bush.
With the U.S. economy in recession, Obama is also asking Congress for his own $775 billion economic package. The U.S. budget deficit soared to a record $485.2 billion in the first three months of the fiscal year that started Oct. 1, the Treasury Department said yesterday in Washington.
The difference between what banks and the U.S. pay to borrow for three months was less than 1 percentage point for a second day, indicating government and central bank efforts to thaw frozen credit markets are working.
The so-called TED spread narrowed to 99 basis points from 4.64 percentage points on Oct. 10, the most since Bloomberg began compiling the data in 1984.
Spread Narrows
The two-year interest-rate swap spread was 53 basis points, near the least since August 2007, when the global decline 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 1.09 percent yesterday, a level not seen since 2003.
The cost of protecting Asia-Pacific corporate and government bonds from default has been cut in half in less than three months, credit-default swaps show.
Markit’s iTraxx Asia index of 50 investment-grade borrowers outside Japan was little changed today at 3.1 percentage points, according to Barclays Capital. Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.
‘Poisoned’
Venezuelan President Hugo Chavez said investors should stay away from “poisoned” U.S. Treasuries. “I don’t recommend that anyone buys bonds from the U.S.,” Chavez said yesterday in comments broadcast on Venezuelan state television.
Bond bulls are betting the U.S. recession will maintain demand for the relative safety of government debt.
U.S. retail job losses will mount this year as consumer spending fails to pick up, said J.C. Penney Co. Chief Executive Officer Myron Ullman.
The retail industry, which employs more people than the U.S. auto industry, cut hiring by 45 percent in 2008, the CEO of the third-largest U.S. department-store chain said at a National Retail Federation conference yesterday in New York.
“We don’t think the economy will recover this year,” said Shuhei Mochizuki, Tokyo-based assistant manager in the foreign bond section at Sumitomo Life Insurance Co., which oversees the equivalent of $33.6 billion in non-Japanese debt. “Yields will fall.”
Sumitomo, Japan’s fourth-largest life insurer, predicts 10- year yields will be less than 2 percent by year-end.
‘Crowding Out’
Purchases at U.S. retailers dropped 1.2 percent last month, extending the longest run of declines since records began in 1992, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department report at 8:30 a.m. in Washington.
Corporations sold almost $13 billion in debt yesterday.
“There is a little bit of a crowding out of Treasuries and into corporate bond issuance,” Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York, said yesterday. “The tone in general for the credit markets has been a lot better.”
