BLBG:Treasuries Head for Longest Stretch of Gains Since 1998
Treasuries headed for an eighth weekly gain, the longest run since Russia devalued the ruble in 1998, as Europe’s fiscal crisis and signs of slower growth increased demand for the relative safety of U.S. securities.
Thirty-year Treasuries, those most sensitive to inflation because of their long maturity, are outperforming shorter securities in May. So-called long bonds have handed investors a 1.2 percent gain, versus 0.6 percent for 10-year notes, while two-year debt is little changed, according to Bank of America Merrill Lynch indexes. U.S. producer prices were unchanged in April for a second month, based on a Bloomberg News survey of economists before the Labor Department reports the figure today.
“The U.S. is our favorite bond market,” said Hiromasa Nakamura, who invests in Treasuries for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $41.2 billion. “We’re favoring maturities of 10 years and over. Inflation will slow.”
Benchmark 10-year yields declined one basis point to 1.86 percent as of 1:50 p.m. in Tokyo, according to Bloomberg Bond Trader data. The 1.75 percent security due in May 2022 rose 3/32, or 94 cents per $1,000 face amount, to 99 1/32.
Ten-year yields slid two basis points this week, approaching the record low of 1.67 percent set Sept. 23. A basis point is 0.01 percentage point. They will tumble to 1.5 percent by the end of the year, said Nakamura, who bet on Treasuries as they advanced last year.
Russia Triggered Rally
A nine-week rally that ended in October 1998 was driven by demand for safety after Russia said in August of that year that it would allow its currency to fall and delay some debt payments.
Japan’s 10-year rate declined 1 1/2 basis points to 0.855 percent. It slid to 0.845 percent on May 9, the lowest since October 2010.
Europe’s debt crisis is threatening to slow growth around the world. Greece’s politicians are struggling to form a government, increasing speculation that the nation will abandon the euro as its currency as officials battles a recession. A Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the least in six months.
U.S. 10-year yields dropped to as low as 1.79 percent on May 9. Their failure to close at 1.8 percent or less is a sign that the rally is losing momentum, according to Hajime Nagata, a bond investor at Diam Co. in Tokyo
‘Correction’ for Treasuries
“The market has tested this level again and again,” said Nagata, who helps oversee the equivalent of $123.9 billion for the unit of Dai-Ichi Life Insurance Co., Japan’s second-biggest life insurer. “Treasuries have rallied for a long time. The market is exhausted. I think we will have a little bit of a correction over the next few days.”
Nagata said he’d like to buy if the 10-year yield rises to 1.95 percent. He cut the target from 2.1 percent two weeks ago.
Treasury investors are reducing bets on inflation.
The difference between yields on U.S. 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for U.S. consumer prices over the life of the debt, has narrowed to 2.17 percentage points from this year’s high of 2.45 percentage point in March. The average over the past decade is 2.15 percentage points.
Investors are willing to accept 2.77 percentage points of extra yield to hold 30-year bonds instead of two-year notes, versus 3.76 percentage points 12 months ago.
China Inflation Slows
Consumer prices in China increased 3.4 percent in April from a year earlier, versus 3.6 percent in March, the National Bureau of Statistics said today.
U.S. consumer prices rose 0.1 percent in April, slowing from March’s 0.3 percent gain, based on the Bloomberg surveys. The Labor Department is scheduled to issue the figure on May 15. A separate report in the U.S. today will probably show consumer confidence retreated from the highest level in a year, based on responses from economists.
The Federal Reserve plans to buy as much as $2 billion of Treasuries due from February 2036 to February 2042 today, according to the Fed Bank of New York’s website. The purchases are part of the central bank’s program 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.
