BLBG:Treasuries Snap Two-day Advance Before Housing, Spending Reports in U.S.
Treasuries snapped a two-day advance before U.S. data on housing and consumer spending this week forecast to show the world’s largest economy is picking up.
Ten-year yields climbed from an 11-week low as Asian stocks advanced, sapping demand for safer assets. Federal Reserve Bank of Richmond President Jeffrey Lacker predicted the U.S. economy will grow 2 percent to 2.5 percent next year and inflation is likely to meet central bank goals. The U.S. government will sell $35 billion of five-year notes today.
“I’m bearish on Treasuries because we basically think the U.S. economy is resilient,” said Kei Katayama, leader of the foreign fixed-income group in Tokyo at Daiwa SB Investments Ltd., which oversees the equivalent of $64 billion. To reflect the fundamentals of the economy “10-year yields should be about 3 percent.”
Ten-year yields added one basis point to 1.82 percent as of 12:32 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The price of the 2 percent securities due November 2021 fell 1/8, or $1.25 per $1,000 face amount, to 101 19/32. The rate slid to 1.80 percent yesterday, the lowest since Oct. 4.
The 10-year yields have fallen 147 basis points in 2011, set for the biggest annual decline in three years. They fell to a record 1.67 percent on Sept. 23.
Japan’s 10-year bond yields added half a basis point to 0.975 percent in Tokyo today, while the MSCI Asia Pacific Index (MXAP) of regional shares rose 0.3 percent.
U.S. Economy
Housing starts in the U.S. increased 1.1 percent last month from October when they declined 0.3 percent, according to economist estimates before the Commerce Department releases the figures today. Consumer spending rose for a fifth month in November, adding 0.3 percent, another survey of economists showed before the government report due Dec. 23.
“I am hard-pressed to see the rationale for any further monetary stimulus” with growth at 2 percent or higher and inflation around 2 percent, Lacker told reporters yesterday. “Recent economic news in the U.S. has been positive for a couple months now.”
Demand for Treasuries was supported as Spain and Greece prepare to sell bills today amid concern a debt crisis in Europe will send the region’s economy into recession.
Spain will auction bills today maturing in 91 days and 182 days. Greece will offer 1 billion euros ($1.3 billion) of 91-day securities. The Ifo institute’s business climate index for Germany, based on a survey of 7,000 executives, decreased to 106 in December, the least since March 2010, according to a Bloomberg News survey of economists before the report today.
‘Positive’ Environment
Members of the euro area, including Spain and Italy, will provide 150 billion euros through bilateral loans to the International Monetary Fund to cope with the economic slowdown and tensions in financial markets, European Union finance ministers said yesterday. The plan is subject to parliamentary approval for some participating countries, they said.
“The environment is generally positive for Treasuries,” said Shinji Kunibe, the chief portfolio manager for fixed-income investment in Tokyo at Nissay Asset Management Corp., which manages the equivalent of $70 billion. “It’s certain that Europe will enter recession.”
Kunibe said he is “overweight” on five-year notes and holds longer-maturity debt in case the yield curve flattens further.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
