BLBG:Treasuries Decline Before Retail-Sales Report, Federal-Reserve Meeting
Treasuries fell, led by longer- maturity bonds, before a government report that economists said will show U.S. retail sales increased in November.
The Federal Reserve will hold a policy meeting today with an improving economy easing pressure on officials to boost their bond purchases. The government plans to sell $21 billion of 10- year notes, the second of four auctions of coupon-bearing debt this week. European shares and U.S. stock futures advanced, damping demand for safer assets.
“You can argue that Treasuries yields may be too low compared with the U.S. economic fundamentals, which seem to be improving,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate and Investment Bank in London. “Gains in stocks earlier also underpinned risk sentiment and reduced demand for government bonds.”
The benchmark 10-year yield climbed two basis points, or 0.02 percentage point, to 2.04 percent at 10:01 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 declined 5/32, or $1.56 per $1,000 face amount, to 99 22/32. The 30-year yield rose three basis points to 3.08 percent.
The 10-year rate will increase to 2.37 percent by the middle of next year, according to a Bloomberg survey of financial companies with the most recent forecasts given the heaviest weightings.
Retail Sales
U.S. retail sales gained 0.6 percent last month, after rising 0.5 percent in October, according to the median forecast of economists surveyed by Bloomberg News before the Commerce Department report. Data over the past two weeks has shown unemployment fell, manufacturing picked up and consumer confidence climbed by the most in eight years.
The 10-year breakeven rate, a gauge of inflation expectations derived from the difference between yields on conventional and index-linked bonds, rose to 2.06 percentage points from 2.03 percentage points last week.
The Fed is replacing $400 billion of shorter maturities in its holdings of Treasuries with longer-term debt to cap borrowing costs in a plan it announced in September. The central bank purchased $2.3 trillion of Treasury and mortgage-related bonds from 2008 through June to support the economy.
The Stoxx Europe 600 Index gained 0.3 percent, and Standard & Poor’s 500 Index (SXXP) futures expiring in March gained 0.4 percent.
Ten-year Treasuries outperformed bunds, with the U.S. securities yielding two basis points less than their German counterparts as investors seek safety amid concern the European debt crisis will deteriorate.
U.S. Auctions
U.S. government securities advanced yesterday as Europe’s debt woes helped spur record demand at the $32 billion sale of three-year debt.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount on offer, climbed to 3.62, the most since 1993, when the government began releasing the data.
The previous 10-year sale on Nov. 9 drew bids for 2.64 times the amount offered, the least since December 2009. Indirect bidders, the group that includes foreign central banks, bought 41.6 percent of the debt, versus the average of 46.7 for the past 10 sales.
Treasuries also gained yesterday as investors sought a refuge after Moody’s Investors Service said it will review ratings for all European Union countries because a summit last week failed to produce “decisive” measures to end the two- year-old crisis. Shares fell worldwide.
“They have no place else to invest their money, with the uncertainty of the stock market and with what’s going on in Europe,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York.
The euro traded at $1.3209, about 2.5 percent away from this year’s low.
Bailout Fund
The European Financial Stability Facility, the EU’s bailout fund, will auction as much as 2 billion euros of 91-day bills today. Greece will sell 1.25 billion euros of 182-day bills, Belgium will offer 1.2 billion euros of short-term debt and Spain will auction 364-day and 553-day bills.
S&P said on Dec. 6 the EFSF may lose its top rating if any of the fund’s six guarantors face a downgrade from AAA. The rating company may cut the debt grade of 15 euro nations, including Germany and France, S&P said separately last week.
Europe’s debt crisis will cap Treasury yields, said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo.
“The U.S. economy has been better than the market expected,” Fujiki said. “The European situation is supportive for U.S. Treasuries, and there’s still a risk of a further rally. Yields will be slightly higher in the first quarter as Europe overcomes this contagion.”
The 10-year rate will rise to 2.25 percent by March 31, according to BNP, whose U.S. unit is one of the 21 primary dealers that underwrite the nation’s federal debt.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
