BLBG: Treasury Yields Near 4-Week Low as Traders Cut Inflation Bets
By Keith Jenkins and Wes Goodman
April 20 (Bloomberg) -- Treasury 10-year yields stayed within 5 basis points of the lowest in four weeks as traders trimmed bets on inflation and analysts said reports this week will show the economy is expanding.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, narrowed for a third day, the longest run this month. It reached 2.32 percentage points today, from this year’s high of 2.49 points in January. Federal Reserve Bank of Chicago President Charles Evans said it is “appropriate” to keep borrowing rates low to spur the economy.
“The Fed will maintain its current interest-rate policy for the time being as inflationary pressures remain low,” said David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt. “The breakeven rate for 10-year Treasuries is hovering close to the 2.30 percentage point mark, which suggests that inflation is not on the radar screen currently.”
The benchmark 10-year note yield climbed less than 1 basis point to 3.81 percent as of 9 a.m. in London, according to BGCantor Market Data. It ended the day at 3.76 percent on April 16, the lowest closing yield since March 23. The 3.625 percent security due February 2020 fell 2/32, or 63 cents per $1,000 face amount, to 98 16/32.
“Low rates seem appropriate to me,” Evans told Chicago public television station WTTW’s “Chicago Tonight” program. It will take “surprisingly strong” growth to bring the jobless rate down, he said in the broadcast yesterday.
Core Inflation
Wholesale prices excluding food and energy costs increased 0.1 percent in March, the same as the prior month, according to a Bloomberg survey before the Labor Department reports the figure on April 22. The cost of living in the U.S. rose 0.1 percent in March, while prices excluding food and energy were unchanged, the department said on April 14.
“We expect core inflation to fall further throughout this year and next,” Sven Jari Stehn, an analyst at New York-based Goldman Sachs Group Inc., wrote in a report yesterday. “The Fed is unlikely to hike until early 2012.”
Futures on the CME Group Inc. exchange show traders are trimming bets on how much the Fed will raise rates this year.
The contracts showed a 56 percent chance the U.S. central bank will raise its target rate for overnight bank lending by at least a quarter-percentage point, down from 65 percent a month ago. The Fed has kept its target in a range of zero to 0.25 percent since December 2008.
Fraud Case
Bookings for goods meant to last several years may have advanced for a fourth month, based on the Bloomberg surveys ahead of the Commerce Department report on April 23. Existing- home sales on April 22 and new-home sales the following day will both show gains for March, the surveys show.
The Securities and Exchange Commission’s decision to pursue a fraud case against Goldman Sachs is helping Treasuries, said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities Capital Markets Co., a unit of Japan’s second-largest brokerage.
“Tighter regulation will discourage investments on riskier assets but will encourage flight into safety-assets such as government debt,” he said.
Fed Chairman Ben S. Bernanke is scheduled to testify today at a House committee hearing on the 2008 bankruptcy of Lehman Brothers Holdings Inc. Treasury Secretary Timothy Geithner and SEC chairman Mary Schapiro will also appear.
Ten-year yields slid seven basis points on April 16 after the SEC sued Goldman for fraud tied to collateralized debt obligations, spurring demand for the safety of government debt.
‘Firm Undertone’
MSCI’s World Index of shares climbed 0.3 percent today, snapping a two-day loss.
“The equity market will maintain a firm undertone, reflecting expectations about the sustained recovery,” said Masashi Nakamura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “This will fuel some upward pressure on Treasury yields.”
South Korea’s National Pension Service plans to reduce holdings of U.S. government debt to diversify bond investments, the Chosun Ilbo reported, citing government and pension officials it didn’t identify. National Pension held U.S. Treasuries worth 4.06 trillion won ($3.6 billion) at the end of 2009, according to the Korean-language newspaper.
Kyungjik Lee, who is in charge of overseas debt and stocks for the service in Seoul, declined to comment on the report.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
