BGBL: Treasury Yield Near Two-Week High as Stocks Rise as Companies Post Profits
U.S. ten-year Treasury yields stayed near the highest in almost two weeks as equities advanced after company earnings exceeded estimates, damping demand for the safest fixed-income assets.
The yield on the 10-year note was above 3 percent for a second day before a sale of $37 billion of five-year debt today, the second of three note auctions this week totaling $104 billion. Declines for notes were tempered by speculation a Federal Reserve report will show the U.S. economy is slowing, reinforcing expectations for the central bank to keep interest rates at a record low.
“There has been some slippage in light of easing global tensions and the earnings,” said Orlando Green, an interest- rate strategist at Credit Agricole Corporate & Investment Bank in London. The Fed report “will confirm there’s still that high degree of uncertainty about the U.S. recovery and the uncertainty is giving some support to Treasuries.”
The benchmark 10-year yield was little changed at 3.05 percent as of 9:45 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due May 2020 stayed at 103 25/32.
Company results are countering data that show falling economic confidence and a housing-market slowdown. About 83 percent of companies in the Standard & Poor’s 500 Index have reported quarterly results that topped estimates.
The 10-year yield advanced six basis points yesterday and has climbed from a 15-month low of 2.85 percent on July 21.
Rising stock prices may lead investors to seek higher yields outside the Treasury market, said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of one of the 18 primary dealers required to bid at the U.S. government’s debt sales.
‘Yields May Rise’
“Yields may rise this week,” Fujiki said. “Risk appetite is rising.”
MSCI’s World Index of stocks climbed 0.4 percent today for a fifth straight gain, the longest rally in a month. The Stoxx Europe 600 Index advanced 0.3 percent.
An increase in yields this month is a buying opportunity because the pace of expansion is poised to decline, according to Bank of Nova Scotia Asia Ltd. Yields have advanced this week mainly because investors are seeking higher rates as they purchase the debt the Treasury is selling, said Colin Embree, the head of fixed-income trading and sales at the bank’s Singapore office, part of Canada’s third-largest lender.
‘Economy Slowdown’
“I’m looking to buy on any backup in yields from here,” Embree said. “There’s going to be a slowdown in the economy.”
The Fed report, the so-called Beige Book regional survey, discusses economic conditions as reported by its 12 district banks. Last month’s survey showed the U.S. economy strengthened in all 12 regions in April and May, while also noting growth in many was subdued.
Fed Chairman Ben S. Bernanke said July 21 “the economic outlook remains unusually uncertain.”
U.S. gross domestic product growth slowed to 2.5 percent in the second quarter, versus 2.7 percent in the previous three months, according to the median estimate of 80 economists in a Bloomberg survey before the government reports the figure July 30.
“The economic data has been soft,” said Peter Jolly, Sydney-based head of market research for the investment-banking unit of National Australia Bank Ltd., the nation’s largest lender. “We need the data to be supportive of the economy for yields to rise.”
Durable Goods
A government report today will show orders for durable goods rose in June, a separate Bloomberg survey showed.
The five-year Treasury notes being sold today yielded 1.83 percent in pre-auction trading, dropping from 1.995 percent at the previous sale on June 23. Investors bid for 2.58 times the amount on offer last month, less than the average of 2.66 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 34.6 percent of the notes, versus the 10-sale average of 46.2 percent.
Two-year Treasury yields climbed the most in six weeks yesterday as the U.S. sold $38 billion of the securities.
Bidding amounted to 3.33 times the amount offered, compared with the average of 3.18 for the previous 10 auctions.
The government is scheduled to auction $29 billion of seven-year debt tomorrow.
Futures on the CME Group Inc. exchange show traders have reduced the chance to 44 percent that policy makers will raise their target lending rate for overnight bank loans by April from 55 percent odds a month ago.
Policy makers cut the target to a range of zero to 0.25 percent in December 2008 to foster economic growth.
