BLBG:Treasuries Snap Loss On Speculation Manufacturing To Slow
Treasuries snapped a loss from yesterday before a U.S. report on orders for durable goods that economists said will indicate manufacturing is poised to slow.
U.S. government debt returned 3.2 percent this quarter through yesterday, according to Bank of America Merrill Lynch indexes, as economic growth ebbed and European governments struggled resolve their fiscal crisis. The MSCI All-Country World Index of stocks handed investors an 8.9 percent loss including reinvested dividends. A $35 billion five-year sale today is poised to draw a record-low yield.
“I’m bullish,” said Tsutomu Komiya, who helps oversee the equivalent of $111.2 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage. “The economy is improving, but the growth rate is worse than expected. Demand is strong because Treasuries are the safe haven.”
Ten-year notes yielded 1.63 percent as of 6:56 a.m. in London, according to Bloomberg Bond Trader data. The all-time low was 1.44 percent set June 1. The price of the 1.75 percent note due in May 2022 was 101 3/32.
Yields will hold at about current levels through year-end, Komiya said.
Japan’s 10-year rate fell one basis point to 0.805 percent today. It was as low as 0.79 percent on June 4, a level not seen since 2003.
U.S. Data
U.S. orders for goods meant to last at least three years such as motor vehicles and electronic equipment probably rose 0.5 percent in May from April, according to the median forecast of economists surveyed by Bloomberg News. Orders fell 6.6 percent in the first four months of 2012, the weakest run since the same period three years ago as the U.S. economy contracted.
A separate report will show pending home sales increased in May, according to another survey.
The five-year notes being sold today yielded 0.734 percent in pre-auction trading, versus 0.748 percent at the previous offering on May 23, which was a record low.
Investors bid for 2.99 times the amount offered last month, versus the average of 2.97 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 42.6 percent of the securities, versus the 10-sale average of 45.
Five-year Treasuries have returned 1.9 percent this quarter, versus 0.1 percent for two-year notes and 14 percent for 30-year bonds, the Bank of America figures show.
Five-year notes yield 41 basis points more than two-year securities. The spread was as narrow as 35 basis points this month, the least since 2007.
Debt Auctions
The government also plans to sell $29 billion of seven-year debt tomorrow, and it auctioned $35 billion of two-year securities yesterday.
Treasury rates are too low for some investors.
“I’m waiting for a better level to buy,” said Will Tseng, who invests in U.S. debt Shin Kong Life Insurance Co., which is in Taipei and has the equivalent of $52.8 billion in assets. Ten-year rates of 1.75 percent may prompt him to add to his holdings, he said.
Bonds are “overvalued,” according to Andreas Utermann, the Frankfurt-based global chief investment officer at Allianz Global Investors, which oversees the equivalent of $348.7 billion. Gold, silver and other commodities, real estate and infrastructure investments are better alternatives, Utermann wrote in a report the company distributed yesterday.
Swap Spread
The difference between the two-year swap rate and the yield on similar-maturity U.S. debt was as small as 22 basis points today, the least in 10 months, indicating demand for higher yields outside the sovereign-debt market.
Investors use swaps to exchange fixed and floating interest-rate obligations. The difference, the gap between the fixed component and the Treasury rate, is a gauge of investor demand for higher-yielding assets.
Treasuries fell yesterday, pushing 10-year yields up two basis points, or 0.02 percentage point, as European leaders prepared for a two-day meeting starting tomorrow to address the region’s debt crisis.
Hideo Shimomura, who helps oversee the equivalent of $75.2 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., said yesterday he plans to delay any Treasury purchases until after the summit in case leaders produce a plan.
Volatility declined for a seventh day yesterday, according to Bank of America Merrill Lynch’s MOVE index. The gauge fell to 71.1 basis points, the lowest level in almost a month. The index measures price swings based on options.
The Federal Reserve plans to buy today as much as 2.25 billion of Treasuries due from February 2036 to May 2042 today as part of its effort to spur the economy by putting downward pressure on borrowing costs, according to the Fed Bank of New York’s website.
The Fed last week extended its program to replace $400 billion of shorter maturity Treasuries in its holdings with longer-term debt as it strives to support the economy. Policy makers increased the measure, known as Operation Twist, by $267 billion through the end of 2012.
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
