BLBG: Treasuries Little Changed as Report Shows Growth Accelerates
By Daniel Kruger
April 30 (Bloomberg) -- Treasury were little changed after a government report showed the U.S. economy expanded at a 3.2 percent annual rate in the first quarter as consumer spending accelerated.
Yields have declined in April as Europe’s debt crisis fueled demand for the safest assets and the Federal Reserve reiterated this week its pledge to keep interest rates near zero for an “extended period.” Greece is trying to reach an agreement with the European Union and the International Monetary Fund on 24 billion euros ($32 billion) in budget cuts.
“Risk assets in general will find this to be encouraging,” said Keith Blackwell, an interest-rate strategist at Royal Bank of Canada in New York, one of 18 primary dealers that trade with the Federal Reserve. “That’s going to put upward pressure on yields.”
The 10-year note yield fell 1 basis point, or 0.01 percentage point, to 3.74 percent at 8:47 a.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security due in February 2020 rose 1/32, or 31 cents per $1,000 face amount, to 99 2/32.
The yield has fallen 9 basis points this month and reached 3.67 percent on April 27, the lowest level since March 23. The two-year note’s yield has dropped 2 basis points this month.
Treasuries returned 0.7 percent in April as of yesterday after a loss of 0.9 percent in March, according to indexes compiled by Bank of America Merrill Lynch.
U.S. Growth
Gross domestic product increased at a 3.2 percent annual pace from January through March, the Commerce Department said. That was less than the 3.3 percent median estimate of 85 economists surveyed by Bloomberg News.
The inflation gauge used by the Fed that’s tied to consumer spending and strips out food and fuel costs climbed at a 0.6 percent annual rate in the first quarter, higher than the 0.5 percent median forecast in a separate Bloomberg survey.
Futures on the CME Group Inc. exchange showed a 65 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by December, down from 68 percent odds a week ago. The central bank has kept the rate between zero and 0.25 percent since December 2008.
Budget Turmoil
Bonds and stocks in Europe’s most indebted nations fell in the past week as Greece’s budget turmoil forced the country to seek a bailout from the European Union and the International Monetary Fund, and Standard & Poor’s downgraded Greece, Portugal and Spain. The euro fell to a one-year low on April 28.
The fiscal crisis may spill into banks and the economy, threatening to derail the global recovery, said David Owen, chief European financial economist at Jefferies Group Inc.
“The current crisis engulfing the euro system is not simply a story about potential sovereign default and further downgrades, but has a far wider implications,” said Owen. “One of our concerns remains the potential impact on banks, significantly increasing the risk for the real economy.”
U.S. note sales this week totaled record $129 billion as President Barack Obama borrows unprecedented amounts to sustain economic growth.
The central bank’s pledge to keep borrowing rates near zero for an “extended period” is raising concern the stance will make it harder for the policy-setting Federal Open Market Committee to keep prices in check as the economy expands.
Fed Meeting
The Fed reiterated the promise after a meeting April 28, and Kansas City Fed President Thomas Hoenig dissented for a third straight time.
Hoenig said “it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the committee’s flexibility to begin raising rates,” according to the FOMC statement.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, widened to 2.44 percentage points today, the most since January.
Treasuries have returned 1.9 percent this year, while investors seeking safety from Greece drove German bonds up 3.7 percent, according to the Bank of America Merrill Lynch indexes. Japanese government securities gained 0.7 percent, the figures show. The MSCI World Index of shares beat all three with a 4.6 percent return.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
