BLBG:Treasury 10-Year Yield Less Than 2% Before Spain Sale
Treasuries snapped a gain from yesterday as economists said data will show U.S. home sales rose in March, indicating there are areas of expansion in the housing market after new construction tumbled.
Fidelity Investments, the Boston-based fund company that oversees $1.61 trillion, has been favoring high-yield debt and other bonds that pay more interest than government securities. The U.S. plans to sell $16 billion of five-year Treasury Inflation Protected Securities today. It is also scheduled to announce the amounts for two-, five- and seven-year auctions scheduled for next week.
Benchmark 10-year yields increased one basis point today to 1.98 percent as of 12:28 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The rate compares with the average of 3.84 percent for the past decade. The price of the 2 percent security due in February 2022 declined 2/32, or 63 cents per $1,000 face amount, to 100 5/32.
“Yields that are less than 2 percent are expensive,” said Youngsung Kim, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor. “There’s some economic data showing the economy is slowing down. I think it’s just temporary. The U.S. economy isn’t bad.”
Japan’s 10-year rate increased one basis point to 0.945 percent. This year’s low was 0.93 percent set earlier this week.
Sales of previously owned U.S. homes probably climbed 0.7 percent in March from February to a 4.62 million annual rate, according to the median estimate of 72 economists in a Bloomberg News survey. Initial jobless claims declined last week, other data will show, based on another survey.
Real Estate Bonds
Home starts slowed in March to a five-month low, the Commerce Department said this week.
Fidelity favors high-yield securities, floating-rate loans, real estate bonds and emerging-market debt, according to a report yesterday on the company’s website.
“These assets continued to be well supported by strong economic fundamentals, low default rates, and strong flows from investors seeking higher yields than those offered by U.S. government bonds,” the report said. Fidelity has also “modestly reduced” these holdings following a recent rally.
The note on Fidelity’s website summarizes a discussion among leaders of the investment-management divisions including Christine Thompson, chief investment officer for bonds.
Samsung Asset’s Kim said he is avoiding U.S. government debt in favor of South Korean bonds.
Treasuries are little changed this year as of yesterday, while U.S. high-yield bonds returned 5.2 percent, according to Bank of America Merrill Lynch indexes.
U.S. Auctions
The MSCI All-Country World Index of stocks rallied 9.8 percent in the period, including reinvested dividends.
The U.S. will probably auction $35 billion of two-year securities on April 24, the same amount of five-year debt on the following day and $29 billion of seven-year notes on April 26, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
Treasuries have fluctuated between gains and losses each day this week. They rose yesterday as Europe’s debt crisis increased demand for the most secure assets.
Spain and France plan to hold bond auctions today as Spanish Prime Minister Mariano Rajoy’s struggle to meet deficit targets and the French presidential elections drive up yields.
“It will be difficult for Treasury rates to go up,” said Hajime Nagata, an investor in Tokyo at Diam Co., which manages the equivalent of $121.8 billion and is an arm of Dai-ichi Life Insurance Co., Japan’s second-biggest life insurer. “The biggest concern is the Spanish auction. The market is also worried about contagion risk.”
The difference between the 10-year swap rate and the yield on similar-maturity U.S. debt has widened to 11 basis points from this year’s low of 5 basis points in March. The increase reflects greater demand for the relative safety of U.S. sovereign debt.
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
