BLBG:Treasuries Have Worst Start to Year Since 2003 Before Home Sales Report
Treasuries are having their worst start to a year since 2003 before a housing report that may add to signs of recovery in the world’s largest economy, damping demand for the perceived safety of U.S. debt.
Ten-year government securities headed for a weekly loss after data showed improvements in employment and manufacturing, while declining yields at European debt sales stoked speculation that the region’s crisis is easing. The Citi Macro Risk Index (MXWD) dropped to a five-month low of 0.601 yesterday, indicating increasing demand for higher-yielding assets.
“We expect 10-year yields to rise gradually from the middle of this year,” Akifumi Kai, the manager of the investment-planning department at Dai-ichi Life Insurance Co. in Tokyo, wrote in an e-mail. “Our main scenario is that we will avoid a global recession.” Dai-ichi is Japan’s second-largest life insurer with $400 billion in assets.
U.S. 10-year yields were little changed at 1.98 percent as of 8:24 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 changed hands at 100 5/32. The rate has increased 11 basis points, or 0.11 percentage point, this week. The difference between two-and 10-year yields widened to as much as 1.76 percentage points, the most since Jan. 6.
The 30-year yield was little changed at 3.05 percent, up from 2.91 percent on Jan. 13.
Worst Since 2003
Treasuries have handed investors a 0.3 percent loss in 2012 as of yesterday, the worst start to a year since 2003, based on Bank of America Merrill Lynch data.
U.S. corporate bonds have returned 0.7 percent this year, German bunds fell 0.1 percent, and Japanese sovereign debt was little changed, the Bank of America figures show. The MSCI All Country World Index (MXWD) of stocks has advanced 5 percent in 2012.
Europe’s debt crisis and the threat of a U.S. economic slowdown combined to send Treasuries up 9.8 percent last year, the most since 2008.
U.S. home purchases increased 5.2 percent last month to a 4.65 million annual rate, the most since May 2010, according to the median forecast of 75 economists surveyed by Bloomberg News. The National Association of Realtors is scheduled to report the figures today.
Initial jobless claims plunged to 352,000 in the week ended Jan. 14, the lowest level since April 2008, the Labor Department said yesterday. A Federal Reserve report on Jan. 18 signaled an expansion in factory output.
Cheaper Fundraising
France and Spain sold 14.6 billion euros ($18.9 billion) of bonds yesterday, with funding costs in both nations falling in the first sale of medium- and long-term debt since Standard & Poor’s downgraded their ratings on Jan. 13.
Greece’s government and private creditors convene today for a third session of talks on how to reduce the nation’s debt and avert a collapse of the economy.
Japan’s 10-year rate rose 1 1/2 basis points to 0.985 percent, climbing for a fourth day.
Yields indicate investors are becoming more willing to lend. The three-month London interbank offered rate for loans in dollars was at 0.561 percent yesterday, headed for a second second straight weekly decline.
The difference between five-year swap rates and the yield on same maturity Treasuries shrank for a third week to 31.5 basis points.
Investors use swaps to exchange fixed and floating interest-rate obligations. The difference, the gap between the fixed component and the Treasury rate, is a gauge of demand for higher-yielding assets versus sovereign debt.
‘Operation Twist’
The Fed has said it will keep its target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of its short-term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.
The Fed is scheduled to buy as much as $2.75 billion of securities due from 2036 to 2041 today as part of the program to cap borrowing costs, according to the New York Fed’s website.
The World Bank said this week the U.S. will expand 2.2 percent in 2012, while the euro area will contract 0.3 percent.
“The global economic outlook will remain challenged,” William O’Donnell, head U.S. government-bond strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc’s RBS Securities primary dealer unit, wrote in a note to clients. “We advocate that longer-term investors use back-ups to reload on longs,” or bets bonds will gain.
Most economists are advising the opposite. The 10-year yield will advance to 2.59 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
Ten-year rates will rise to 2.5 percent by Dec. 31, according to a report yesterday by RBC Capital Markets LLC, one of the 21 primary dealers that trade with the Fed.
“Weak but positive growth should allow rates to grind higher barring an increase in European stress,” according to the report by analysts including Michael Cloherty, the head of U.S. rates strategy in New York.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
