BLBG:Treasuries Head For Monthly Loss; BlackRock Seeks Yield
Treasuries extended a monthly loss on concern yields that are within 20 basis points of the record low will curb demand when the U.S. sells $29 billion of seven- year notes today.
U.S. government securities slid 0.2 percent in June as of yesterday, trimming their gain for 2012 to 1.9 percent, according to Bank of America Merrill Lynch data. High-yield bonds in the nation returned 1.5 percent this month, or 6.6 percent this year, the figures showed. BlackRock Inc. (BLK), the world’s biggest money manager, and JPMorgan Chase & Co., the largest U.S. bank, favor corporate bonds.
“People are taking on a little more risk to get a lot higher yield than they can get from Treasuries,” said Ali Jalai, who trades U.S. debt in Singapore at Scotiabank, a unit of Bank of Nova Scotia (BNS), one of the 21 primary dealers authorized to deal with the Federal Reserve. “The economy isn’t going into a recession.”
Benchmark 10-year yields increased one basis point, or 0.01 percentage point, to 1.63 percent as of 6:35 a.m. in London, according to Bloomberg Bond Trader data. The all-time low yield was 1.44 percent set June 1. The 1.75 percent note due in May 2022 declined 3/32, or 94 cents per $1,000 face amount, to 101 3/32.
Japan’s 10-year rate rose half a basis point today to 0.805 percent, versus this year’s low of 0.79 percent set June 4.
Lower Yield
The seven-year Treasuries being sold today yielded 1.109 percent in pre-auction trading, versus 1.203 percent at the last sale of the securities on May 24, which was the lowest on record.
Investors bid for 2.8 times the amount of debt available last month, versus the average of 2.84 times for the past 10 auctions.
Bidding declined at a five-year sale yesterday and a two- year auction June 26, which were both for $35 billion.
Seven-year notes yielded 78 basis points more than two-year Treasuries. The difference was as little as 67 basis points this month, the least since the Treasury revived seven-year auctions in 2009.
“You’ve got to push for more and more yield,” Eric Pellicciaro, the head of global rates investment at BlackRock, said yesterday on Bloomberg Television’s “In the Loop” with Deirdre Bolton. “You’ve got to go to the best parts of the high-yield structure.” New York-based BlackRock oversees $3.68 trillion.
Jan Loeys, the chief market strategist at JPMorgan Chase, also favors corporate bonds.
‘High Grade’
“High-grade credit overall is the best place to be,” he said June 25 on Bloomberg Television’s “Lunch Money” with Stephanie Ruhle and Adam Johnson.
Investor demand has narrowed the yield on Bank of America Merrill Lynch’s index of U.S. investment-grade and high-yield corporate bonds to 3.03 percentage points more than Treasuries from 3.48 percentage points at the end of 2011.
Fed officials last week extended their effort to support the U.S. economy by replacing shorter maturities in their holdings with longer-term debt. The swaps will put downward pressure on interest rates and ease conditions in financial markets, according to the central bank.
It plans to sell as much as $8.75 billion of Treasuries due from November 2014 to June 2015 today as part of the program, according to the Fed Bank of New York’s website.
More Willing
The difference between the overnight indexed swap rate and the three-month London interbank offered rate shrank to a nine- month low of 28 basis points in a sign banks are becoming more willing to lend.
Treasury yields are hovering near their record lows as investors seek U.S. securities as a haven from Europe’s fiscal crisis. European Union leaders are scheduled to meet today and tomorrow as they look for ways to help governments in the region pay their debts.
“There are only a few risk-free assets, and Treasuries are one,” said Yoshiyuki Suzuki, the Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co., which has the equivalent of $69.3 billion in assets. “The European situation won’t stabilize, so the buying of Treasuries will continue.”
Yields will rise later this year as the economy expands, Suzuki said, pushing back his forecasts for higher rates because of the flight to quality.
Treasuries have swung between gains and losses for a week as investors waited for the European summit.
Decreased Volatility
Volatility declined for an eighth day yesterday, according to Bank of America Merrill Lynch’s MOVE index. The gauge fell to 70.2 basis points, the lowest level in almost a month. The index measures price swings based on options.
Ten-year yields will increase to 2.14 percent by year-end, according to a Bloomberg survey of economists, with the most recent projections given the heaviest weightings.
U.S. gross domestic product expanded at a 1.9 percent annual pace in the first-quarter, matching the government’s previous estimate, economists surveyed by Bloomberg News projected ahead of the Commerce Department report today. Growth slowed from 3 percent in the final three months of last year.
Initial claims for unemployment insurance fell last week, a separate report will show, according to the surveys. Orders for durable goods rose in May, the government reported yesterday.
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
