BLBG:Treasuries Fall As Australia GDP Spurs Optimism On Growth
Treasuries fell for a third day as an acceleration in Australian gross domestic product growth spurred optimism the global economy can withstand Europe’s debt crisis, curbing demand for the relative safety of U.S. debt.
Government securities declined this week on speculation the pace of expansion won’t justify keeping yields at the record lows set June 1. Officials from the world’s largest economies agreed to coordinate their response to Europe’s financial crisis on a conference call yesterday. European and Asian stocks advanced as investors sought higher-yielding assets.
“The rally is pausing,” said Hideo Shimomura, who helps oversee the equivalent of $76.1 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest publicly traded bank. “Australian GDP was surprising. It’s a good indicator for the world.” Mitsubishi UFJ cut its Treasury holdings on June 4 after yields tumbled to records, Shimomura said.
The benchmark 10-year yield rose one basis point, or 0.01 percentage point, to 1.59 percent at 8:35 a.m. London time, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2022 dropped 1/8, or $1.25 per $1,000 face amount, to 101 115/32. The yield declined to an all-time low of 1.4387 percent on June 1.
Australia Growth
Australia’s economy expanded 1.3 percent in the first quarter, a government report showed, more than twice the pace projected by a Bloomberg News survey of economists. The country’s 10-year yield increased six basis points to 3 percent. It fell to a record 2.70 percent on June 4.
The Euro Stoxx 600 Index gained 1.1 percent and the MSCI Asia Pacific Index (MXAP) of shares advanced 1.2 percent.
Group of Seven officials said they will work together to help both Spain and Greece place their public finances on a sustainable footing, Japan’s Finance Minister Jun Azumi told reporters in Tokyo following the call yesterday.
Treasuries fell yesterday as the Institute for Supply Management’s index (SXXP) of non-manufacturing businesses, which covers about 90 percent of the economy, rose to 53.7 in May from April’s 53.5.
The number of Americans making initial applications for jobless benefits fell by 5,000 to 378,000 last week, according to median estimate of economists surveyed by Bloomberg News before the Labor Department report tomorrow.
‘Low Levels’
Tsutomu Komiya, who helps oversee the equivalent of $110 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage, said he’s not ready to bet against Treasuries.
“Yields will hover at these low levels this year,” Komiya said. “The U.S. still has problems. The European problem will take a long time to solve.
Federal Reserve Bank of Chicago President Charles Evans said yesterday economic data have been “on the soft side,” warranting “extremely strong accommodation.” Evans doesn’t vote on monetary policy this year.
Fed Chairman Ben S. Bernanke is scheduled to speak tomorrow on the outlook for the U.S. economy, as the central bank winds down the debt-extension program it is using to help foster economic growth.
The Fed is replacing $400 billion of shorter-term Treasuries in its holdings with longer maturities by the end of this month to keeping borrowing costs down. The central bank plans to buy as much as $2.25 billion of Treasuries due from February 2036 to May 2042 today as part of the effort, according to the Fed Bank of New York’s website.
Further Stimulus
Morgan Stanley, one of the 21 primary dealers of U.S. government securities that trade with the central bank, said June 1 the probability of the Fed adding further stimulus is 80 percent, up from 50 percent. A Labor Department report that day showed the U.S. added 69,000 jobs in May, less than half the number projected by a Bloomberg survey of economists.
The European Central Bank will keep its benchmark interest rate at 1 percent at a policy meeting today, a separate Bloomberg survey showed.
Chungkeun Oh, who invests in bonds in the biggest markets for Industrial Bank of Korea (024110), South Korea’s largest lender to small- and medium-sized companies, said he bought Treasuries in May and stopped in June.
“I don’t think yields will go deeply lower,” Oh said. “They have already priced in all the bad news from the economy and the Europe political issues.”
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net.
