MW: Treasury Yield Near One-Week High on Stock Gains, Growing Sales
By Wes Goodman
April 26 (Bloomberg) -- Treasury yields were near a one- week high as gains in Asian shares reduced demand for debt while the U.S. prepared to sell a record $129 billion of securities.
The U.S. plans to auction $11 billion of five-year inflation-protected securities today, followed by note sales over the next three days. Economists said a government report this week will show U.S. gross domestic product grew in the first quarter, and an analyst at Pacific Investment Management Co. warned the Federal Reserve may raise interest rates this year if the job market strengthens.
“It may be time to sell” Treasuries, said Kazuhito Miyabe, who helps oversee $12 billion as head of foreign fixed income in Tokyo at Toyota Asset Management Co., a unit of the world’s largest automaker. “The economic data will show a recovery.”
The yield on the benchmark 10-year note rose one basis point to 3.82 percent as of 6:43 a.m. in London, according to BGCantor Market Data. The 3.625 percent security due February 2020 fell 2/32, or 63 cents per $1,000 face amount, to 98 13/32.
Ten-year yields earlier climbed to 3.83 percent, the most since April 16. They will rise to 4.20 percent by the middle of June, Miyabe said. Two-year notes yielded 1.07 percent, matching the highest level in two weeks.
MSCI’s Asia Pacific Index of shares advanced 1.5 percent, snapping a two-day loss.
This week’s auctions will also consist of $44 billion in two-year notes tomorrow, $42 billion of five-year securities on April 28 and $32 billion in seven-year debt on April 29. The total will be the most ever for a single week.
‘Lot of Talk’
Anthony Crescenzi, a strategist at Pimco, which runs the world’s largest mutual fund, said the Fed may increase borrowing costs earlier than many investors anticipate.
“There’s a lot of talk building up toward employment gains that could make it possible the Fed could raise rates by the end of the year,” Crescenzi said April 23 on Bloomberg Radio.
U.S. gross domestic product expanded 3.4 percent last quarter from a year earlier, after increasing at a 5.6 percent pace in the last three months of 2009, according to a Bloomberg survey of economists before the Commerce Department reports the figure on April 30.
The Fed has kept its target rate in a range of zero to 0.25 percent since December 2008. Policy makers will complete their next meeting on April 28.
Greece Progress
Greece moved toward securing an emergency aid package before debt payments come due in mid-May, helping erode investor demand for the safest assets.
“The flight to quality over Greece is moderating,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas Securities Japan Ltd. The company’s U.S. branch is one of the 18 primary dealers that trade directly with the Federal Reserve.
Greek Finance Minister George Papaconstantinou, speaking yesterday in Washington, said investors they will “lose their shirts” if they bet the nation will default.
Sovereign bonds yield an average 2.385 percent, about the same as a year ago and below the average of 3.08 percent in 2008, when the credit market seizure led investors to seek the safety of government debt, according to Bank of America Merrill Lynch index data. The cost to borrow is steady even though the amount of bonds in the index that includes nations from the U.S. to the Germany and Japan has grown to $17.4 trillion from $13.4 trillion two years ago.
‘Well Behaved’
While the increased debt helped the global economy recover from its first recession since World War II, yields show bond investors aren’t troubled that the growth will spur inflation. Consumer prices excluding food and energy costs rose 1.5 percent in February from a year earlier in the 30 countries that form the Organization for Economic Cooperation and Development, the smallest gain on record.
“The fact that inflation is very well behaved, that provides the cover for central banks to remain on the sidelines and continue to pursue accommodative policies to help the economy,” said Thomas Girard, a senior money manager who helps oversee $115 billion in fixed-income assets with New York Life Investment Management in New York.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for U.S. consumer prices, narrowed to 2.36 percentage points from this year’s high of 2.49 percentage points in January. The five-year average is 2.15 percentage points.
Investors became less bearish on the outlook for U.S. government debt through year-end, according to a weekly survey by Ried Thunberg ICAP Inc., a unit of ICAP Plc, the world’s largest inter-dealer broker.
The company’s investor sentiment index rose to 43 for the seven days ended April 23 from 42 the week before. A figure of less than 50 shows investors expect prices to fall. The company, based in Jersey City, New Jersey, interviewed 21 fund managers controlling $1.38 trillion.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
