BLBG:Treasuries Rise As Data May Show Retail Sales Dropped
Treasuries rose, snapping a decline from yesterday, on speculation data today will show U.S. retail sales fell for the first time in a year, supporting the case for the Federal Reserve to expand stimulus measures.
Demand for the perceived safety of U.S. bonds was bolstered before Italy sells government notes this week and Greece holds general elections on June 17 amid concern Europe’s debt crisis is spreading. The U.S. is scheduled to sell $21 billion of 10- year securities today in the second of three note auctions this week totaling $66 billion.
“Demand for Treasuries is likely to remain strong as the European debt crisis continues and the U.S. economy softens,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $70 billion in Tokyo. “There are increasing expectations for some Fed action.”
The yield on the 10-year note fell one basis point, or 0.01 percentage point, to 1.65 percent at 6:40 a.m. in London, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 gained 3/32, or 94 cents per $1,000 face amount to 100 7/8. The rate yesterday rose eight basis points.
Japan’s benchmark 10-year yield was little changed at 0.855 percent.
U.S. retail sales probably declined 0.2 percent in May after rising 0.1 percent the prior month, according to the median estimate of economists in a Bloomberg News survey before the data are released today.
FOMC Meeting
The U.S. central bank, which meets June 19-20, bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011, seeking to cap borrowing costs and stimulate the economy.
The Fed will purchase as much as $5.5 billion of Treasuries due from August 2020 to May 2022 today under its program known as Operation Twist, which aims to replace holdings of shorter- term securities with longer-term bonds, according to the Fed Bank of New York’s website.
Fed Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth, underscoring his preference for more stimulus.
“I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans, who doesn’t vote on the Federal Open Market Committee this year, said in an interview aired yesterday on Bloomberg Television’s “In the Loop” with Betty Liu. He reiterated his call for the central bank to commit to low interest rates until the unemployment rate falls below 7 percent or inflation breaches 3 percent.
Consumer Prices
Increases in U.S. consumer prices, excluding food and energy, slowed to 2.2 percent last month from a year earlier after rising 2.3 percent in April, a Bloomberg News poll forecasts before a Labor Department report tomorrow.
The difference in yields between 10-year notes and Treasury Inflation Protected Securities, which represents traders’ expectations for inflation over the life of the debt, was 2.15 percentage points, down from this year’s high of 2.45 percentage points in March.
Italy is scheduled to sell 6.5 billion euros ($8.1 billion) of 364-day bills today, before offering debt maturing in 2015, 2019 and 2020 tomorrow. The yield on the nation’s benchmark 10- year government bond rose to 6.3 percent yesterday, approaching the 7 percent level that led to bailouts in Greece, Ireland and Portugal.
Treasury Sales
Gains in Treasuries were limited before the U.S. sells 10- year debt, with yields on benchmark notes about 20 basis points above the all-time low.
U.S. government securities gained 2.9 percent since March 30 through yesterday, Bank of America Merrill Lynch data show, with the 10-year yield falling from 2.3 percent on April 4 to a record-low 1.44 percent on June 1 as concern that Greek may leave the currency bloc deepened euro-area turmoil. The MSCI All Country World Index (MXWD) of equities handed investors an 8.8 percent loss including reinvested dividends over the same period.
“Traders might have found that bonds have become too expensive as they get new supply,” Mitsubishi UFJ’s Ishigane said.
A $32 billion auction of three-year notes yesterday drew a yield of 0.387 percent, compared with a forecast of 0.383 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.65, compared with an average of 3.43 for the past 10 sales.
Indirect Bidders
Indirect bidders, an investor class that includes foreign central banks, purchased 27 percent of the notes, compared with an average of 37.6 percent for the past 10 sales. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 12 percent of the notes at the sale, compared with an average of 9.8 percent for the previous 10 auctions.
“The auction was good, but not great,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “They had buyer’s fatigue. You have a marketplace where yields are close to their lows.”
The U.S. is scheduled to auction $13 billion of 30-year debt tomorrow. The three sales this week will raise $35.3 billion of new cash as maturing securities held by the public total $30.7 billion, according to the U.S. Treasury.
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
