BLBG:Treasury 10-Year Yield Is Less Than 2% Before French Vote
U.S. 10-year yields were less than 2 percent on speculation Francois Hollande will defeat Nicolas Sarkozy in the French presidential vote May 6, slowing Europe’s effort to cut spending and fueling the region’s debt crisis.
Ten-year rates were 26 basis points from the record low as investors sought Treasuries as a haven from Europe and a slowing U.S. economy. U.S. payrolls probably increased by 160,000 in April, according to the median forecast of 85 economists surveyed by Bloomberg News before the government releases its monthly jobs report today. It would follow a 120,000 gain for March, the least since October.
“Euro uncertainty pushed rates lower,” said Kevin Yang, who is in charge of bond investment at Hontai Life Insurance Co., which has $6 billion in assets and is in Taipei. “The French election may revise the nation’s deficit-cutting policy.”
Benchmark 10-year rates were little changed at 1.93 percent as of 8 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2 percent security due in February 2022 was 100 5/8. The rate has risen from the record low of 1.67 percent set Sept. 23. It compares with the average of 3.83 percent for the past decade. A basis point is 0.01 percentage point.
Yang said he sold Treasuries when the 10-year yield fell below 1.9 percent in late April because the rate was too low given the pace of economic growth. He would like to buy if yields rise to a range of 2.2 percent to 2.3 percent, he said.
European Uncertainty
French President Sarkozy is trailing Socialist party challenger Hollande in opinion polls ahead of this weekend’s election. Hollande has criticized Europe’s German-led austerity push and argued for the renegotiation of the region’s fiscal compact.
Standard & Poor’s cut Spain’s debt rating April 26, increasing concern European governments won’t be able to pay their debts.
Greece, which completed the largest debt restructuring in history this year, is also holding an election May 6.
Last month’s U.S. jobs report ignited a debate over whether the economy is poised to slow. U.S. gross domestic product grew at an annual rate of 2.2 percent in the first quarter, from 3 percent in the prior three months, the Commerce Department reported April 27.
Corporate Debt
For all the discussion over the pace of expansion, corporate bonds in the U.S. are surging. Treasuries have returned 0.2 percent this year, eclipsed by a 4.5 percent rally for an index of investment grade and high-yield company debt, according to Bank of America Merrill Lynch data.
“Payrolls will compensate for what they lacked last month,” Marc Fovinci, who helps oversee $3 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, said of the U.S. jobs report. “It doesn’t hurt to own credit. We’re happy to earn the incremental yield. I don’t think there’s going to be major change in the economy that’s going to create fear in the credit markets.”
The Bank of America Merrill Lynch corporate bond index yielded 2.80 percentage points more than Treasuries. Demand for the securities has narrowed the spread from 3.48 percentage points at the end of last year.
High-Yield Bonds
High-yield bonds can help debt investors increase their incomes, Fidelity Investments, the Boston-based fund company that oversees $1.61 trillion, said on its website May 2. The securities are rated below BBB- by Standard & Poor’s and Baa3 by Moody’s.
T. Rowe Price Group Inc. in Baltimore, which oversees $554.8 billion, announced May 1 that it closed its high-yield bond funds to new investors.
The company’s High Yield Fund attracted $266 million in the first three months of 2012, versus $112 million for 2011, the company said in a press release on its website.
The flows “could eventually strain our ability to invest efficiently and result in an over-diversified fund with a less effective investment strategy,” Mark Vaselkiv, the portfolio manager, said in the release.
Columbia Management Investment Advisers LLC, the Boston fund manager that oversees $326 billion, said it favors high- quality corporate bonds and mortgage-backed securities over long-term Treasuries, in a report on its website April 30.
The Federal Reserve plans to sell as much as $8.75 billion of Treasuries due from August 2012 to February 2013 today, according to the Fed Bank of New York’s website.
The sales are part of the U.S. 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.
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
