BLBG:Treasuries Fall As Australia GDP Spurs Optimism On Growth
Treasuries fell for a third day as speculation European Central Bank policy makers will signal they are accelerating steps to counter the debt crisis at a meeting today damped demand for the safety of U.S. government debt.
Ten-year note yields climbed to the highest level in a week as an acceleration in Australian gross domestic product growth spurred optimism the global economy can withstand the turmoil in Europe. Economists said a U.S. report tomorrow will show the number of Americans claiming for jobless benefits declined last week, fueling bets that record-low yields aren’t justified by the pace of expansion.
“Fundamentally you should expect yields to go higher” after being pushed down by the European sovereign debt crisis, said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “We have the ECB today and the commentary there will be very important to monitor.”
The benchmark 10-year yield rose three basis points, or 0.03 percentage point, to 1.6 percent at 6:01 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2022 dropped 7/32, or $2.19 per $1,000 face amount, to 101 11/32. The yield declined to an all-time low of 1.4387 percent on June 1.
While ECB officials meeting in Frankfurt will leave the benchmark rate at 1 percent, according to 32 of 44 economists surveyed by Bloomberg News, 11 predict a quarter-point reduction and one forecasts a half-point cut. With European governments struggling to fix a crisis that’s engulfing Spain and may prompt Greece to exit the euro, pressure is mounting on the ECB to lower rates and introduce more liquidity support for banks.
Australian 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 2.7 percent on June 4.
Treasuries declined yesterday as a report showed the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, rose to 53.7 in May from 53.5 in April.
The number of Americans making initial applications for jobless benefits fell by 5,000 to 378,000 last week, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department report tomorrow.
‘Good Indicator’
“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.
Federal Reserve 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.
‘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.”
Fed 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.
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.
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: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
