BLBG:Treasuries Snap Four-Day Gain Before U.S. Home Prices, Confidence Report
Treasuries snapped a rally that sent five-year yields to a record low as economists said industry reports today will show American home prices dropped at a slower pace and consumer confidence increased.
The Federal Reserve will refrain from increasing bond purchases as the economy expands, said Bob Doll, chief equity strategist at BlackRock Inc., the world’s biggest asset manager. Demand for the relative safety of U.S. securities waned after Greece’s prime minister said talks with bondholders on how to cut his nation’s debt are making progress. Europe’s fiscal crisis helped Treasuries rise this month.
“Treasuries are a good place to be for a temporary investment because of the flight to quality,” said Yoshiyuki Suzuki, who helps oversee the equivalent of $72 billion as the head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo. “It’s not attractive to hold to maturity. The U.S. economy is still good.”
Benchmark 10-year yields rose one basis point, or 0.01 percentage point, to 1.85 percent at 8:20 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent security due November 2021 slid 3/32, or 94 cents per $1,000 face amount, to 101 10/32. Five-year notes yielded 0.74 percent from 0.7157 percent yesterday, the least ever.
Fukoku Mutual favors shorter maturities, those that will fall less in price should yields rise, Suzuki said.
Volatility in the Treasury market is at an eight-month low. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, fell to 72.4 yesterday, the least since May 31 and less than the five-year average of 111.8.
Fed Purchases
The S&P/Case-Shiller index of property values in 20 U.S. cities probably dropped 3.3 percent in November from the year before, the smallest decline in 10 months, according to a Bloomberg News survey of economists before the report today. Consumer confidence is projected to have climbed in January to the highest level since February 2011, separate figures may show, according to another survey.
The Fed has bought $2.3 trillion of debt in two rounds of quantitative easing known as QE1 and QE2. The central bank announced on Jan. 25 that it plans to keep its target for overnight bank lending at a record low through at least late 2014. Chairman Ben S. Bernanke said he’s considering another program of debt purchases.
“QE3 will be seen only if the U.S. economy flags,” Doll said on Bloomberg Television’s “First Up” with Susan Li. “Ben Bernanke will use it if we have a rainy day and only then,” said Doll, who is based in Princeton, New Jersey, for BlackRock, which oversees $3.51 trillion.
Greek Debt Talks
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., took the opposite view in a Twitter post last week. A third, fourth and fifth round of easing “lie ahead,” wrote Gross, who is based in Newport Beach, California.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs under a program it announced in September and plans to conclude in June.
The central bank is scheduled to buy as much as $2.75 billion of securities due from February 2036 to November 2041 today as part of the swap, according to the New York Fed’s website.
More Cuts
Greek Prime Minister Lucas Papademos said representatives of the European Commission, the European Central Bank and the International Monetary Fund want more fiscal tightening and wage cuts from his nation. He spoke to reporters in Brussels after a European Union summit.
Yields indicate investors are becoming more willing to lend as governments in the region try to curb spending.
The London interbank offered rate, which banks pay for three-month loans in dollars, fell three basis points in January, the most in 17 months. Libor, a benchmark for about $360 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London.
The extra yield that Libor offers over the overnight indexed swap rate narrowed to 46 basis points, the least in seven weeks. The spread is a market gauge of banks’ reluctance to lend.
Treasury yields have further to decline, according to Deutsche Bank AG, one of the 21 primary dealers that trade with the Fed. Ten-year rates will approach 1.5 percent and five-year yields will fall toward 0.5 percent, Dominic Konstam, the global head of interest-rate research in New York, wrote in a report that the company distributed yesterday.
Treasuries returned 0.3 percent in January as of yesterday, according to Bank of America Merrill Lynch data. Treasury Inflation Protected Securities gained 1.9 percent.
An index (MXWD) of bonds around the world advanced 0.8 percent in January, according to the Bank of America data. The MSCI All Country World Index (MXWD) of stocks returned 5.5 percent this month as of yesterday.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
