BS: Treasuries Decline as Australian Jobs, N.Z. Rate Signal Growth
By Matthew Brown and Wes Goodman
June 10 (Bloomberg) -- Treasuries fell as Australia’s larger-than-forecast increase in jobs and a boost in New Zealand’s borrowing costs reduced demand for safety.
The drop pushed yields on 10-year notes up from almost a one-year low on eased concern Europe’s sovereign-debt crisis will slow the global economic recovery. The 30-year bond declined on speculation demand at today’s $13 billion sale of the security may be weak.
“We’ve got some numbers that are suggesting that Europe is not necessarily derailing the global recovery, and we have supply,” said Mark Schofield, head of interest-rate strategy in London at Citigroup Inc., one of the 18 primary dealers obligated to participate in Treasury auctions. “The flight-to- quality bid is subsiding, and it will continue to do so.”
The 10-year note’s yield increased three basis points, or 0.03 percentage point, to 3.21 percent at 7:03 a.m. in New York, according to BGCantor Market Data. The price of the 3.5 percent security maturing in May 2020 fell 9/32, or $2.81 per $1,000 face amount, to 102 14/32.
The yield on the 30-year bond climbed two basis points to 4.13 percent. The yield fell as low as 3.97 percent on May 25, the least since Oct. 8.
While concern that Europe’s most-indebted nations may default has driven demand for Treasuries, economic reports are showing the rest of the world is weathering the crisis.
N.Z. Rate Boost
New Zealand’s central bank raised its benchmark interest rate for the first time in three years, increasing it to 2.75 percent from a record low 2.5 percent. China’s exports jumped 49 percent last month from a year earlier. Japan revised its first- quarter gross domestic product to an annualized 5 percent from 4.9 percent.
Treasuries also slid as the euro rose for a third day versus the dollar and stocks gained in Asia and Europe. The Stoxx Europe 600 Index climbed 0.6 percent after a 1.1 percent increase for the MSCI Asia Pacific Index.
The 30-year bonds scheduled for sale today yielded 4.141 percent in pre-auction trading, dropping from 4.490 percent at a sale on May 13. The bid-to-cover ratio at that auction, which gauges demand by comparing the amount bid with the amount offered, was 2.6, compared with 2.73 at the last sale and an average of 2.56 for the past 10 auctions.
Bond Returns
Thirty-year bonds, among the most sensitive to inflation because of their long maturities, have outperformed the rest of the U.S. debt market this year as inflation slowed.
The securities have returned 11 percent, versus 4.6 percent for the broader market, according to Bank of America Merrill Lynch indexes.
U.S. consumer prices dropped 0.1 percent in April, the first decrease since March 2009, the Labor Department said May 19. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12-month gain in four decades.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, was 1.95 percentage points. It has risen from 1.83 percentage points on May 21, the least since October. The five-year average is 2.14 percentage points.
Federal Reserve Chairman Ben S. Bernanke said yesterday in congressional testimony that the U.S. central bank will act as needed to aid financial stability and economic growth after restarting emergency currency-swaps to help contain Europe’s debt crisis.
Bernanke Pledge
“Our ongoing international cooperation sends an important signal to global financial markets that we will take the actions necessary to ensure stability and continued economic recovery,” Bernanke said.
Royal Bank of Canada, also a primary dealer, said the flight to U.S. debt may not be over. The euro fell to a four- year low against the dollar on June 7 on concern efforts to cut spending in Europe will slow the region’s economic growth.
“Our expectation is that many international investors will continue to reallocate out of euro-denominated assets in favor of Treasuries,” analysts led by Tom Porcelli, an RBC economist in New York, wrote to clients yesterday. “These investors have few other alternatives for safe investments.”
--Editors: Dennis Fitzgerald, Dave Liedtka
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
