BLBG:Treasuries Fall as U.S. Growth Signs Damp Safety Bid Before 30-Year Sale
Treasuries fell for the first time in three days before reports this week that economists said will show wholesale prices rose and manufacturing expanded, damping demand for the safest securities.
Ten-year yields climbed from near a three-week low as the U.S. prepared to auction $13 billion of 30-year bonds today after selling three- and 10-year notes this week. The Federal Reserve said yesterday the U.S. economy is maintaining its expansion even as the world economy slows. Thirty-year yields of about 3 percent don’t offer much value, said Martin Hegarty, co- head of global inflation-linked portfolios at BlackRock Inc., the world’s largest money manager.
“Treasuries are a safe haven during the euro-debt crisis, but it’s hard to envisage their yields falling much further from here given the U.S. economic backdrop,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Recent economic data suggested the economy is expanding, and that’s consistent with what the Fed said.”
The benchmark 10-year yield climbed one basis point, or 0.01 percentage point, to 1.98 percent at 6:38 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 dropped 1/8, or $1.25 per 1,000 face amount, to 100 5/32. The yield fell to 1.95 percent yesterday, the lowest since Nov. 25.
Economists predict U.S. reports this week on import prices, producer costs and consumer inflation will probably all show increases for November, following declines in October.
Growth Signs
Producer prices gained 0.2 percent last month from October, when they dropped 0.3 percent, according to a Bloomberg survey before tomorrow’s Labor Department report. Industrial production rose 0.1 percent in November, a separate survey showed ahead of the Fed’s data also tomorrow. Gauges of manufacturing in the Philadelphia and New York regions may also point to expansion, economists project.
“The economy has been expanding moderately, notwithstanding some apparent slowing in global growth,” the Federal Open Market Committee said at the end of its Dec. 13 meeting. “While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated.”
The central bank refrained from taking new action to lower borrowing costs.
U.S. 30-year yields rose two basis points to 3.03 percent, after dropping 10 basis points during the past two days.
Investors should replace these bonds in their portfolios with 30-year Treasury Inflation Protected Securities, or so- called real rates, Hegarty said in an interview yesterday on Bloomberg Television’s “Street Smart” with Adam Johnson.
‘Underweight’
“We tend to be underweight nominal Treasuries and overweight real rates,” said Hegarty, who helps oversee $3.35 trillion for BlackRock in New York. “I wouldn’t say that 30- year Treasuries at 3 percent are reflective of their risks.”
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was 2.01 percentage points. The 10-year average is 2.13 percentage points.
Bids at yesterday’s 10-year auction were 3.53 times the amount offered, the highest level in 20 months. The figure was 3.62 at the three-year debt sale on Dec. 12, the most since 1993 when the government began releasing the data.
Investors submitted orders for 2.4 times the amount of debt offered at the previous auction of 30-year bonds on Nov. 10, versus the average of 2.65 for the past 10 monthly auctions.
The government is scheduled to sell $12 billion of five- year TIPS tomorrow in its last auction this week.
Fed Sales
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and foster economic growth, in a plan it announced in September. It is scheduled to sell as much as $8.75 billion of securities due from 2012 to 2013 today as part of the program, according to the New York Fed’s website.
Treasuries have returned 9.4 percent in 2011, the most since 2008, according to Bank of America Merrill Lynch indexes, as the debt crisis in Europe spread to the biggest economies and investors parked their funds in the U.S.
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: Daniel Tilles at dtilles@bloomberg.net
