BLBG:Treasuries Fall as Asia Stocks, China Manufacturing Rise
Treasuries held losses from yesterday after an index of Chinese manufacturing rose in April, adding to evidence global growth is strengthening and curtailing demand for the relative safety of government debt.
Ten-year notes dropped earlier today as the odds of more Federal Reserve stimulus fell after four central bankers said it probably won’t be needed and an index of U.S. manufacturing released yesterday unexpectedly accelerated. U.S. companies added workers in April, according to a Bloomberg News survey before the ADP Employer Services releases the data today. The U.S. will today announce the sizes of auctions for next week.
“In addition to the strong manufacturing data yesterday and the positive Chinese data, the markets are in a risk-on mode and that will push yields slightly higher,” said Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt. “The moderate positive developments in the U.S. economy and a robust Chinese economy will lead to higher yields. The ADP report should be robust.”
The benchmark 10-year note yielded 1.95 percent at 8:50 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2022 fell 1/32, or 31 cents per $1,000 face amount, to 100 14/32. The yield dropped to 1.88 percent on April 27, approaching the record low of 1.67 percent set Sept. 23.
HSBC Holdings Plc and Markit Economics said China’s Purchasing Managers’ Index for April advanced to 49.3 from a preliminary 49.1 reported on April 23 and a final 48.3 the previous month. A reading below 50 indicates contraction.
Factory Output
Treasuries fell yesterday after the Institute for Supply Management said its U.S. factory index rose to 54.8 last month from 53.4 in March.
Employment climbed by 170,000 in April after rising 209,000 in March, according to a Bloomberg survey before ADP’s report today. U.S. payrolls increased by 161,000 last month after a 120,000 gain in March, a separate survey showed before the Labor Department announces the figures on May 4.
Policy makers have pledged to keep the benchmark target for overnight bank lending at almost zero until at least late 2014. The central bank has also purchased $2.3 trillion of debt in two rounds of quantitative easing, or QE, to lower borrowing costs.
John Williams, president of the San Francisco Fed, joined his counterparts from Richmond, Philadelphia and Atlanta yesterday in casting doubt on the need for additional purchases of bonds to push down longer-term interest rates. Three of them are voting members of the Federal Open Market Committee, which sets interest rates.
Thresholds
Thresholds for further action “would be if we see economic growth slow to the point where we’re not seeing further progress in bringing the unemployment rate down,” Williams said at a conference in Beverly Hills, California. Those aren’t “the circumstances I currently expect,” he said.
The U.S. will sell $32 billion of three-year notes, $24 billion of 10-year securities and $16 billion of the 30-year bonds over three days starting May 8, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey. Maturing Treasuries available for reinvestment will total $36.7 billion, and the sales will raise $35.3 billion of new cash, Wrightson estimates.
Inflation-Linked Notes
The U.S. may also announce plans to sell floating-rate securities, Mary Miller, the Treasury’s undersecretary for domestic finance, said Feb. 1.
“We expect the U.S. to announce whether it plans to launch a floating-rate notes program,” Moyeen Islam, a strategist at Barclays Capital in London, wrote in a client note today. “The Treasury is likely to start with a two-year, or a slightly shorter, floating-rate note so as to tap into demand from the money-market fund community.”
The Fed plans to sell as much as $1.5 billion of Treasury Inflation Protected Securities from its holdings today. The notes will be those maturing from April 2013 to April 2015, according to the Fed Bank of New York’s website. The sales are part of the central bank’s effort to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to hold down borrowing costs.
Fed efforts to support the economy will push the inflation rate higher, according to Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co.
Pimco favors debt in the five-year maturity range, as well as dividend-paying stocks that yield 3 to 4 percent, Gross wrote in his monthly investment outlook on the Newport Beach, California-based company’s website yesterday.
The difference between yields on 10-year notes and similar- maturity TIPS, a gauge of expectations for consumer prices over the life of the debt, has widened to 2.28 percentage points from 1.95 percentage points at the end of 2011. The average over the past decade is 2.14 percentage points.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
