BLBG:Treasuries Rise as Asian Stocks Fall, Gross Warns on QE3
Treasury yields were within 16 basis points of the record low as Pacific Investment Management Co.’s Bill Gross said the odds of Federal Reserve bond purchases are rising and as Asian stocks fell.
Europe’s fiscal crisis and slowing economic growth are increasing demand for the relative safety of U.S. government debt. Gross joined Jan Hatzius, the chief economist at Goldman Sachs Group Inc., who wrote in a report that the Fed will announce monetary easing in June. The central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, known as QE1 and QE2, from 2008 to 2011 to support the economy.
“Yields can go lower,” said Chungkeun Oh, an investor in Seoul who tracks the U.S. at Industrial Bank of Korea (024110), South Korea’s largest lender to small- and medium-sized companies. “QE3 is quite possible. The noise from European countries is getting stronger.” Oh, who added to his Treasury holdings last month, said 10-year rates may fall another 10 basis points, or 0.1 percentage point.
Benchmark yields declined one basis point to 1.83 percent as of 6:43 a.m. in London, according to Bloomberg Bond Trader data. The 2 percent security due in February 2022 advanced 3/32, or 94 cents per $1,000 face amount, to 101 17/32. The record low rate was 1.67 percent set Sept. 23.
The MSCI Asia Pacific Index (MXAP) of stocks dropped 1.3 percent, after earlier tumbling as much as 1.5 percent to the lowest level since January.
Japan’s 10-year rate was 0.855 percent, matching the 18- month low set on each of the past two days. Australia’s 10-year yield slid to a record of 3.35 percent.
Decision ‘Getting Closer’
Prospects for Fed asset purchases increased after a Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the least in six months. Europe’s debt crisis is fueling demand for safety, as politicians in Greece struggle to form a new government, raising concern the nation will abandon the euro as its currency.
A Fed decision to buy more bonds is “getting closer,” Gross, who runs the world’s largest mutual fund and is based in Newport Beach, California, wrote on Twitter yesterday.
Hatzius said the U.S. economy is “dreary,” in a report yesterday.
‘More Insurance’
“In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for U.S. monetary policy makers,” New York-based Hatzius wrote.
The Fed is replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down, under a program scheduled to end next month.
The central bank plans to buy as much as $1.5 billion of Treasury Inflation Protected Securities today as part of the plan, targeting securities due from July 2018 to February 2042, according to the Fed Bank of New York’s website.
Policy makers have also pledged to keep the target for overnight bank lending as low as zero until at least late 2014.
The U.S. is scheduled to sell $24 billion of 10-year notes today, with the auction poised to draw a record low rate.
The securities yielded 1.865 percent in pre-auction trading, compared with 2.043 percent the last time the government sold the notes on April 11. The all-time low was 1.90 percent set in January’s sale.
Investors bid for 3.08 times the amount of debt offered last month, versus the average of 3.11 for the past 10 auctions.
Indirect bidders, the group that includes foreign central banks, bought 38.5 percent of the debt, versus the 10-sale average of 41.9.
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
