BLBG:Treasuries Fall as Economists Say Data This Week Will Add to Growth Signs
Treasuries fell, extending their decline in January, before government and industry reports this week that economists said will show U.S. retail sales and consumer confidence increased.
A rally that sent U.S. sovereign debt to its biggest gain last year since 2008 is being interrupted as the economy improves and the government prepares its first sales of coupon- bearing maturities for 2012. The government will sell $32 billion of three-year notes tomorrow, $21 billion of 10-year debt the following day, and $13 billion of 30-year bonds on Jan. 12. German Chancellor Angela Merkel meets French President Nicolas Sarkozy today to discuss the region’s debt crisis.
“Economic figures out of the U.S. have surprised on the upside, and we are seeing some upward pressure on Treasury yields,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “But the rise in yields could be limited if the euro debt crisis worsens, and I don’t think we’ve passed the worst of the crisis yet.”
The 10-year yield (USGG10YR) rose one basis point, or 0.01 percentage point, to 1.97 percent at 10:37 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 fell 1/8, or $1.25 per $1,000 face amount, to 100 7/32. Thirty-year yields climbed two basis points to 3.04 percent.
U.S. retail sales (RSTAMOM) gained 0.3 percent in December, after increasing 0.2 percent the previous month, according to a Bloomberg survey (RSTAMOM) before the Commerce Department report on Jan. 12. The Thomson Reuters/University of Michigan preliminary consumer confidence gauge for January rose to a seven-month high, a separate survey showed before the Jan. 13 data.
Labor Market
This week’s figures are likely to add to evidence the recovery in the world’s largest economy is gathering momentum. The U.S. added 200,000 jobs in December, surpassing economists’ estimates for 155,000, the Labor Department reported last week. The unemployment rate fell to 8.5 percent, the lowest since February 2009.
The difference (USGGBE10) between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, has widened to 2.08 percentage points from 1.95 percentage points at the end of last year. The 10-year average is 2.13 percentage points.
Treasuries have underperformed German bonds and British gilts this year, handing investors a 0.37 percent loss compared with declines of 0.1 percent from both German debt and U.K. government bonds, according to indexes compiled by the European Federation of Financial Analysts Societies.
Fed Sales
The Federal Reserve is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-dated debt to cap borrowing costs and foster economic growth, in a plan it announced in September. The central bank is today scheduled to sell as much as $8.75 billion of notes due from April to September 2012 as part of the program, according to the New York Fed’s website.
Still, the International Monetary Fund’s chief economist Oliver Blanchard said the organization will make a “fairly substantial” cut to its forecasts for global growth.
“I can’t give you a number,” Blanchard said in an interview on Bloomberg Television on Jan. 6. “It’s going to be substantial.”
Bearish on Treasuries
Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, maintained their bearish stance on Treasuries. Ried’s index on the outlook through June rose to 45 for the seven days ended Jan. 6, from 44 a week earlier. A figure below 50 shows investors expect Treasuries to decline.
The U.S. is scheduled to sell $32 billion of three-year notes tomorrow, $21 billion of 10-year securities the following day and $13 billion of 30-year bonds on Jan. 12. The amounts are the same as the previous auctions in December.
Economists, emboldened by gains in everything from U.S. manufacturing to consumer confidence and jobs, are advising clients to get out of Treasuries. Traders aren’t so eager to give them up.
Benchmark 10-year yields will climb to 2.6 percent by Dec. 31 from 1.88 percent last year as growth accelerates, according to the median estimate of 63 economists and strategists surveyed by Bloomberg. Traders aren’t as optimistic, expecting an increase to 2.25 percent, based on forwards that use current trading levels to predict future rates.
The divergence shows traders see Europe’s debt crisis continuing to stoke demand for safety and containing yields even as the economy improves. Predictions last year by both groups for a selloff proved wrong as Treasuries due 10 years or more returned the most since 1995, even as President Barack Obama increased publicly traded debt (DEBPMARK) outstanding to a record $9.88 trillion and Standard & Poor’s stripped the U.S. of its AAA rating on Aug. 5.
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
