BLBG:Treasury Yield Is 19 Basis Points From Record Low on Outlook for Inflation
Treasury yields were 19 basis points away from the record low before government reports forecast to show U.S. inflation is in check even as the economy expands.
Notes and bonds maintained a two-day gain as Europe’s fiscal crisis fueled demand for the relative safety of Treasuries. Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co., said rating cuts of euro-area debt may trigger forced selling by investors who are required to hold only the highest grade securities.
“It may be some time before yields rise,” said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $120.6 billion and is a unit of Japan’s second-biggest brokerage. “The U.S. has almost zero risk of inflation because of the high unemployment rate. The market is focused on Europe.”
Ten-year yields held at 1.86 percent as of 5:47 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 changed hands at 101 9/32. The record low yield was 1.67 percent set Sept. 23.
Japan’s 10-year rate was little changed at 0.965 percent. It slid to 0.935 percent on Jan. 16, which was the least in 14 months.
U.S. producer prices probably increased 0.1 percent in December after a 0.3 percent gain the previous month, the median forecast of economists surveyed by Bloomberg News showed before the report today.
Inflation Outlook
Consumer prices being issued tomorrow rose 0.1 percent last month after being unchanged in November, according to a separate survey. The U.S. jobless rate has been more than 8 percent for almost three years.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.03 percentage points. The average over the past decade is 2.13 percentage points.
Pimco’s Gross, said yesterday that credit-rating cuts in Europe may lead some investors to purge the region’s bonds from their holdings.
“There are regulatory issues in the case of structures that are dependent on certain types of ratings and to the extent that various countries get downgraded, then those positions have to be reduced,” he said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
European Debt
Standard & Poor’s on Jan. 13 cut the debt grades of several euro-area nations including France, Italy, Portugal and Spain, while affirming Germany’s AAA ranking.
Overseas demand for U.S. assets probably increased in November, according to a Bloomberg survey of economists before the Treasury Department report today.
Net purchases of long-term U.S. bonds, stocks and other assets by investors outside the nation rose to $40 billion from $4.8 billion in October, based on the median estimate.
The appeal of Treasuries is diminishing among some investors as the world’s biggest economy gains momentum.
Output at factories, mines and utilities probably rose 0.5 percent last month after dropping 0.2 percent in November, the median projection of economists in another poll showed before figures from the Federal Reserve today.
“We’re getting good data,” said Ali Jalai, a Treasuries trader in Singapore at Scotia Capital Inc., one of the 21 primary dealers that underwrite the U.S. debt. “Yields are low. I don’t see why people are buying them.” Ten-year rates may rise to 2.2 percent by March 31, he said.
Global Economy
The world economy will grow 2.5 percent this year, the World Bank predicted, down from a June estimate of 3.6 percent. The bank sees the euro area contracting 0.3 percent in 2012, compared with a previous estimate of 1.8 percent growth. The U.S. outlook was cut to an expansion of 2.2 percent from 2.9 percent, according to a report the bank published yesterday in Washington.
The Fed is scheduled to buy as much as $5 billion of securities due from 2020 to 2021 today as part of a program to cap borrowing costs. The central bank will also sell as much as $8.75 billion of debt due from 2013 to 2014, according to the New York Fed’s website.
Thirty-year bonds advanced yesterday as the Fed began four consecutive days of purchasing debt without any new issuance.
The next auction will be for $15 billion of 10-year TIPS tomorrow. The U.S. is scheduled to sell 2-, 5- and 7-year securities over three days starting Jan. 24.
The five-year sale on Jan. 25, when Fed policy makers gather for a meeting and release funds rate projections, may see some “market volatility,” according to RBC Capital Markets LLC, a unit of Royal Bank of Canada, a primary dealer.
“A larger-than-normal concession is likely to be needed at the auction,” Michael Cloherty, the New York-based head of U.S. interest-rate strategy, wrote in a report yesterday.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
