BLBG:Treasuries Stay Lower Before Home Prices; BlackRock Is Be
Treasuries held a decline from yesterday before an industry report that economists predict will show a drop in U.S. home prices slowed in the year to January.
The U.S. plans to sell $35 billion of two-year debt today, the first of three note auctions this week. U.S. 10-year Treasuries headed for their biggest monthly decline in more than a year as BlackRock Inc. (BLK), the world’s largest money manager with $3.51 trillion in assets, said investors should favor stocks over bonds.
“We’ve seen some stronger data in the last month and that has caused yields to rise,” said Marius Daheim, a senior fixed- income strategist at Bayerische Landesbank in Munich. “The market still seems ready to react to positive data surprises.”
The yield on the benchmark 10-year note was little changed at 2.25 percent at 10:31 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2022 traded at 97 25/32. The yield climbed two basis points, or 0.02 percentage point, yesterday, and has increased 28 basis points in March.
Treasuries have handed investors a 1.4 percent loss in 2012, heading for their biggest quarterly decline since the last three months of 2010, according to indexes compiled by Bank of America Merrill Lynch.
The S&P/Case-Shiller index of property values in 20 U.S. cities dropped 3.8 percent from January 2011, the smallest decline in three months, according to the median forecast of economists surveyed by Bloomberg News. Another report will show consumer confidence fell in March, a separate survey indicated.
‘Overweight Equities’
“I clearly want to be overweight equities,” Robert Doll, chief equity strategist at BlackRock, said in a radio interview yesterday on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “I want to be underweight Treasuries.
The U.S. is “probably the only major economy in the world that’s going to have stronger economic growth in 2012 than we had in 2011,” Doll said.
The Chicago Board Options Exchange Volatility Index, the so-called fear gauge for U.S. stocks, fell to 14.26 yesterday, the lowest closing level since 2007.
Bonds fell yesterday as Fed Chairman Ben S. Bernanke said stimulative policy is still needed to reduce joblessness.
“Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said in a speech in Arlington, Virginia.
Fed Buying
The Fed is scheduled to buy as much as $2.25 billion of Treasuries due from 2036 to 2042 today under a plan announced in September to cap borrowing costs by replacing $400 billion of shorter maturities in its holdings with longer-term debt.
The central bank reiterated on March 13 its pledge to keep borrowing costs low at least until late 2014.
Treasuries underperformed bunds, with the yield difference, or spread, between the 10-year securities widening, as bets the U.S. economy is recovering damped demand for U.S. debt compared with its German equivalents.
“Not too long ago Treasuries were trading on par with bunds, so the wider spread shows that the U.S. market has factored in the stronger economy,” Bayerische Landesbank’s Daheim said.
The spread between the benchmark Treasuries and similar- maturity German bunds widened one basis point to 31 basis points. The spread expanded to 36.7 basis points on March 22, the most since February 2011, based on closing prices. Bunds last yielded more than Treasuries in February, according to closing-price data compiled by Bloomberg.
‘Not as Good’
The New York-based Conference Board’s consumer confidence gauge, fell to 70.1 this month from a one-year high of 70.8 in February, the Bloomberg survey median shows.
“Market participants recognize that the current economic condition is not as good as they thought,” said Hajime Nagata, an investor in Tokyo at Diam Co., which manages the equivalent of $128.8 billion and is an arm of Dai-Ichi Life Insurance Company Ltd., Japan’s second-biggest life insurer. The Fed would “like to keep the long-bond rates very low.”
Thirty-year yields may fall to as low as 3 percent if they decline below a key support level, according to Paul Day, chief strategist at Market Securities in London.
A close below 3.24 percent, a so-called a Tom DeMark propulsion momentum level, may see the yield move toward 3 percent, Day said.
The Tom DeMark Propulsion Momentum Target is a technical indicator named after its creator that operates on the premise that repetitive price movements in the same direction have a tendency to replicate one another. The 30-year (USGG30YR) yield was little changed at 3.34 percent.
Two-Year Sale
The two-year notes being sold today yielded 0.365 percent in pre-auction trading, compared with 0.31 percent at the previous sale of the securities on Feb. 21.
Investors bid for 3.54 times the amount of available debt last month, versus the average of 3.53 for the past 10 auctions. Indirect bidders, the category of buyers that includes foreign central banks, purchased 35.8 percent, the most since November at the monthly sales.
The government is also scheduled to auction $35 billion of five-year notes tomorrow and $29 billion of seven-year securities on March 29.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
