BLBG:Treasuries Fall First Time in Four Days as China Pledges Help to Europe
Treasuries (YCGT0025) fell for the first time in four days after People’s Bank of China Governor Zhou Xiaochun said his nation pledged to participate in solving the region’s debt crisis, curbing demand for haven assets.
Ten-year yields rebounded from a near one-week low after Zhou said in a speech in Beijing that China is ready to be more involved in helping Europe. China has $3.18 trillion of foreign- exchange reserves, the most in the world. Investors seeking income should favor high-yield debt, according to Western Asset Management Co., the Pasadena, California, fixed-income investor with $455 billion of assets.
“China could make Europe’s problems go away,” said Peter Jolly, head of market research at National Australia Bank Ltd. in Sydney. “They have the funds. To the extent that China will participate in the European solution, it takes away some of the flight to quality in Treasuries.”
Ten-year yields rose two basis points, or 0.02 percentage point, to 1.96 percent as of 2:02 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due February 2022 declined 5/32, or $1.56 per $1,000 face amount, to 100 13/32. The rates fell as low as 1.92 percent yesterday, the least since Feb. 7.
European finance ministers canceled a Brussels meeting scheduled for today and will hold a teleconference instead to prod Greece to do more to win an aid package worth 130 billion euros ($171 billion) along with about 100 billion euros of debt relief from private bondholders. Greece needs the aid to make a 14.5 billion euro bond payment on March 20.
China Supports Europe
China can use three avenues to assist Europe, including the nation’s central bank, its sovereign wealth fund and state- affiliated banks, Zhou said. Brazil, Russia, India and China are very positive toward helping resolve the debt crisis, though they have to wait for the right time and opportunity, he said.
Japan’s benchmark 10-year yield was unchanged at 0.96 percent today.
Demand for the relative safety of Treasuries also abated as Asian stocks rebounded from yesterday’s losses before a report today that may show U.S. industrial production rose the most in six months in January.
The MSCI Asia Pacific Index (MXAP) of stocks gained 1.7 percent, rallying from a 0.6 percent drop yesterday.
Output at U.S. factories, mines and utilities increased 0.7 percent last month after a 0.4 percent gain in December, according to the median estimate of economists surveyed by Bloomberg News before the Federal Reserve reports the figure today. Manufacturing in the New York region accelerated and homebuilder confidence climbed, separate reports will show, based on the surveys.
Yield Forecasts
“If the market was looking just at the U.S. economy, it would be easy for yields to rise,” said Tsutomu Komiya, who helps oversee the equivalent of $118.2 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second- biggest brokerage. “As long as the Federal Reserve keeps the borrowing rate on hold, the upside risk in yields is limited.”
Ten-year yields will climb to 2.5 percent by year-end, Komiya said. That compares with a projection of economists in a Bloomberg survey for 2.49 percent.
‘Sustained’ Improvement Lacking
“The recent economic news has been encouraging, but in my view we haven’t seen enough sustained improvement to be sure it will last,” Atlanta Fed President Dennis Lockhart said yesterday in a speech in Sarasota, Florida. “The current policy stance is appropriate for an outlook of steady, moderate growth with gradual employment gains.”
Lockhart, who votes on monetary policy this year, supported the Federal Open Market Committee’s pledge on Jan. 25 to keep the target interest rate exceptionally low at least through late 2014. The Fed also for the first time released policy makers’ forecasts for the timing of an increase in the benchmark interest rate. The central bank is scheduled to release minutes of the latest meeting today.
High-yield debt in the U.S. has handed investors 3.9 percent return this year, while Treasuries have lost 0.1 percent, according to Bank of America Merrill Lynch data.
“For those investors who believe in continued slow growth and low interest rates, high-yield fixed-income sectors should be particularly attractive,” according to a report on Western Asset’s website yesterday. “Default rates should stay at reasonably low levels,” according to the report, which did not identify the author.
Weaker Demand
Overseas demand for U.S. assets probably waned in December, according to a Bloomberg survey of economists before a Treasury Department report today.
Net purchases of long-term U.S. bonds, stocks and other assets by investors outside the nation fell to $45 billion from $59.8 billion in November, based on the median estimate.
The Treasury Department is scheduled to sell $9 billion of 30-year Treasury Inflation Protected Securities tomorrow. It also plans to announce the size of two-, five- and seven-year auctions set for next week.
It will probably sell $35 billion of 2-year notes on Feb. 21, $35 billion of 5-year securities on Feb. 22 and $29 billion of seven-year debt on Feb. 23, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance. The amounts would be the same as the last time the Treasury sold these securities in January.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
