BLBG:Treasuries Snap Gain as Goldman Recommends Bets Against F
Treasury 10-year notes snapped yesterday’s first gain in two weeks before an industry report that economists said will show U.S. home sales rose.
Investors should bet against 10-year Treasury futures contracts, Goldman Sachs Group Inc. said in a report. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said he sees the central bank beginning to withdraw monetary stimulus in 2012 or 2013 if the economy meets his forecast.
“People are starting to realize that there is gradual growth in the economy,” said Kei Katayama, who invests in U.S. bonds at Tokyo-based Daiwa SB Investments Ltd., which oversees the equivalent of $59.2 billion including Asia’s second-largest mutual fund. “I’m concerned that there’s a global bond bubble. Maybe not within a week or a month, but there’s a risk that yields will rise globally.”
U.S. 10-year yields rose one basis point to 2.37 percent as of 2:20 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 fell 1/32, or 31 cents per $1,000 face amount, to 96 25/32. The rate slid two basis points, or 0.02 percentage point, yesterday.
Ten-year yields have climbed from the record low of 1.67 percent set Sept. 23. They are still less than the average of 3.87 percent over the past decade.
Katayama, who has been holding fewer Treasuries than the percentage in the index he uses to gauge performance, said the two-week rout wasn’t enough to get him to drop the position.
Japan’s 10-year rate rose one basis point to 1.04 percent, the first increase in almost a week.
Housing Data
A measure of bonds around the world has dropped 0.7 percent this month as of yesterday, the most since November 2010, according to Bank of America Merrill Lynch figures. The MSCI All Country World Index of stocks gained 1 percent, including reinvested dividends, data compiled by Bloomberg show.
U.S. home purchases climbed 0.9 percent in February from January to a 4.61 million annual rate, the most since May 2010 (ETSLTOTL), according to the median forecast of economists surveyed by Bloomberg News before the National Association of Realtors reports the figure today.
Goldman Sachs reiterated its view that investors should bet against 10-year Treasury futures, according to a report yesterday by Fiona Lake, an economist for the New York-based company. Goldman, one of the 21 primary dealers that underwrite the U.S. debt, initiated the recommendation on March 14 at a price of 129 17/32 with a target of 126.
Ten-year futures contracts for June delivery were little changed today at 127 31/32.
China Growth
U.S. government securities rose yesterday, pushing 10-year yields down from a four-month high and ending a nine-day decline in prices that was the longest since 2006. Yields climbed to levels that lured investors.
Treasuries also gained on concern growth is slowing in China, the world’s second-largest economy. BHP Billiton Ltd. (BHP), the Melbourne-based world’s largest mining company, said yesterday that Chinese steel production is slowing.
Fed Chairman Ben S. Bernanke said yesterday the economy is still challenging, in an interview on CNBC.
“Weaker economic growth in China is supporting those who are bullish,” said Tomohisa Fujiki, an rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “U.S. economic growth is OK, but not the strength that the Fed wants.”
Ten-year yields will be 2.3 percent by the end of June, rising to 2.7 percent by Dec. 31, according to BNP, which is another primary dealer.
The Fed’s policy committee reiterated in a March 13 statement the view that it will probably need to keep its benchmark rate at almost zero at least through late 2014.
Fed Operation
The Minneapolis Fed’s Kocherlakota said yesterday the central bank may start to withdraw monetary stimulus as soon as 2012 if the economy meets his forecast, including an inflation rate of 2 percent or higher during the next two years.
The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term bonds to cap borrowing costs. It plans to buy as much as $4.25 billion of U.S. debt due from March 2018 to February 2020 today as part of the program, according to the New York Fed’s website.
An inflation gauge tracked by the Fed rose to a six-month high. The five-year, five-year forward breakeven rate, which projects annualized price increases over a 60-month period starting in 2017, climbed to 2.76 percent. It was the most since Sept. 1.
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
