BLBG:Treasuries Fall Before Existing Home Sales, Note Auctions
Treasuries fell for a third day, the longest losing run in two months, before a private report forecast to show sales of existing homes in the U.S. rose in April, indicating the housing market is beginning to stabilize.
Government securities interrupted a rally that sent yields to record lows before Europe’s leaders meet to address the region’s fiscal crisis, easing demand for the relative safety of U.S. debt. Federal Reserve Bank of Atlanta President Dennis Lockhart said economic conditions don’t warrant another round of bond purchases by the central bank. The U.S. plans to sell $99 billion of notes starting today.
“My main scenario is that the world is OK,” said Kei Katayama, who invests in U.S. debt in Tokyo at Daiwa SB Investments Ltd., which has the equivalent of $62.5 billion in assets including Asia’s second-largest bond fund. “The situation in Europe is very serious, but politicians are trying to figure out the solution. Yields will go up.”
Ten-year yields rose two basis points to 1.76 percent as of 7:01 a.m. in London, Bloomberg Bond Trader data show. The 1.75 percent security due in May 2022 declined 5/32, or $1.56 per $1,000 face amount, to 99 29/32. The rate increased four basis points, or 0.04 percentage points, over the past two days.
It was as low as 1.6886 percent on May 17, compared with the record of 1.6714 percent set Sept. 23. Seven-year notes yielded 1.18 percent, versus 1.135 on May 18, the least ever.
The MSCI Asia Pacific Index (MXAP) of stocks rose 1.2 percent, heading for its biggest gain since March 27 and helping damp demand for debt.
Japan’s 10-year yield was unchanged at 0.855 percent. The rate slid to 0.815 percent on May 18, a level not seen since 2003.
European Meeting
Sales of existing U.S. homes probably climbed 2.9 percent in April from March, gaining for the first time in three months, based on a Bloomberg News survey of economists before the National Association of Realtors reports the figure today. The economy has struggled to pick up and bring down an unemployment rate that has been more than 8 percent for three years.
European Union leaders are scheduled to meet tomorrow amid speculation Greece will abandon the euro.
UBS AG, one of the 21 primary dealers that deal directly with the Fed, is trimming its forecast for higher yields. The 10-year rate will be 2.40 by year-end, based on figures posted yesterday for a Bloomberg survey by Sophie Constable, an analyst for the company in London. The prediction was 2.70 percent on May 14.
Risks From Europe
Lockhart said the Fed needs to retain the option of starting a new round of bond buying to spur the U.S. expansion as it faces risks from Europe.
“I do not think this option can be taken off the table,” he said yesterday. Additional purchases “will work under the right circumstances. But I don’t believe such circumstances prevail at this time.” Lockhart votes on monetary policy this year.
The central bank plans to sell as much as $8.75 billion of Treasuries due from March 2013 to September 2013 today, according to the Fed Bank of New York’s website. The sales are part of the bank’s program to replace $400 billion of shorter- term debt in its holdings with longer maturities by the end of June to help keep down borrowing costs.
Investors Split
Investors are debating whether the Fed will increase its debt purchases to spur the economy.
“We do not believe that is likely,” Bob Doll, the chief equity strategist at New York-based BlackRock Inc. (BLK), wrote on the company’s website yesterday. “The Fed would need to see some deterioration in the pace of economic growth before it would decide to take action,” according to the company, the world’s largest money manager with $3.7 trillion in assets.
The Fed “may well” arrange another round of purchases, said Mohamed El-Erian, the chief executive officer at Pacific Investment Management Co., which is based in Newport Beach, California, and runs the world’s biggest bond fund.
The 10-year yield will be 10 basis points lower or 30 basis points higher than the current level by year-end, he said yesterday on the “Bloomberg Surveillance” radio program with Tom Keene and Ken Prewitt.
The U.S. plans to sell $35 billion of two-year notes today, the same amount of five-year debt tomorrow and $29 billion of seven-year securities on May 24.
Two-year notes yielded 0.295 percent in pre-auction trading, compared with 0.27 percent at the previous sale April 24.
Investors bid for 3.76 times the amount of available debt in April, the most since November at the monthly auctions.
Indirect bidders, the category of buyers that includes foreign central banks, purchased 32.1 percent, the least this year.
U.S. two-year notes yielded 24 basis points more than same- maturity securities in Germany. The spread was a quarter percentage point on May 17, the most in almost two years.
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.
