BLBG:Treasury 10-Year Note Yields Rebound From 10-Week Low Before Note Auctions
Treasury 10-year notes declined before the U.S. begins auctions of two-, five- and seven-year notes this week and as low yields damped investor demand.
The benchmark Treasury yield earlier dropped to a more than two-month low on the death of North Korean leader Kim Jong Il along with the prospect of credit downgrades of France and Spain. Housing and consumer-spending data this week may add to evidence that the world’s largest economy is gaining momentum.
“It is difficult to drive yields down lower unless one feels there is an impending collapse in the euro zone,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “The other factor is that we do have supply this week in the U.S. That will probably put a little bit of pressure at the short end.”
The yield on the 10-year note climbed two basis points, or 0.02 percentage point, to 1.87 percent at 10:43 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent security due November 2021 fell 5/32, or $1.56 per $1,000 face amount, to 101 16/32. The rate earlier touched 1.83 percent, the lowest since Oct. 5.
The benchmark 10-year yield has declined 142 basis points this year and fell to a record low of 1.67 percent on Sept. 23.
The Treasury will offer $35 billion of two-year notes today, and auction the same amount of five-year debt tomorrow, and $29 billion of seven-year securities on Dec. 21. The amounts were unchanged from the last offerings of the maturities in November.
U.S. Data
Housing starts in the U.S. increased 1.1 percent last month from October when they declined 0.3 percent, according to economist estimates in a Bloomberg News survey before the Commerce Department releases the data tomorrow. Consumer spending rose for a fifth month in November, adding 0.3 percent, a separate survey showed before the report due Dec. 23.
“U.S. data have been showing the economy is picking up,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third-largest listed bank. “The yields are far too low given the fundamentals.”
Treasuries have gained 1.1 percent in the month through Dec. 16, based on Bank of America Merrill Lynch data. German bunds gained 2.7 percent and Japanese bonds increased 0.6 percent, the indexes show.
U.S. debt due in 10 years or more has returned 30 percent this year, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes.
Fed Asset Purchases
The Federal Reserve is scheduled to buy as much as $5 billion of Treasuries due from 2017 and 2019 today as part of a plan announced in September to replace $400 billion of shorter maturities in its holdings with longer-term debt to cap borrowing costs.
The sell-off in Treasuries was limited before finance ministers in the euro region hold a conference call today. They may discuss 200 billion euros in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at the summit, according to two people familiar with the planning.
Fitch Ratings last week lowered France’s rating outlook and put the grades of nations including Spain and Italy on review for a downgrade.
“I’m not expecting any material sell-off on Treasuries any time soon,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker. “All hinges on Europe at the moment. We need risk appetite to come back into the market” to see an increase in yields.
Kim Death
U.S. two-year interest-rate swap spreads, a measure of stress in credit markets, were at 49 basis points today, hovering around the widest level since Nov. 30, according to data compiled by Bloomberg.
The gap between what banks and the Treasury pay to borrow money for three months, known as the TED spread, reached 57 basis points Dec. 16, the highest level since May 2009.
Ten-year Treasuries earlier surged and the MSCI (MXAP) Asia Pacific Index of shares dropped as much as 2.5 percent today after the official Korean Central News Agency said Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness while on a domestic train trip.
“It’s what I’d call a classic knee-jerk reaction,” said Monument’s Ostwald. “That it’s well known North Korea has some nuclear capabilities, although it’s unclear what, and uncertainty as to who takes over didn’t exactly help sentiment.”
-- Editors: Matthew Brown, Mark McCord
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
