BLBG:Treasuries Snap Decline On Outlook For Slowing Growth
Treasuries rose, pushing 10-year yields to within five basis points of a record low, on speculation reports next week in Europe and the U.S. will show the global economic slowdown is deepening.
Two-year notes headed for a fourth weekly gain as a decline in Asian and European shares boosted demand for relative safety of U.S. debt. Treasuries have returned 2.5 percent in the three months ended yesterday, according to Bank of America Merrill Lynch data. The MSCI All-Country World Index (MXWD) of stocks handed investors a 2.1 percent loss, including reinvested dividends.
“I’m keeping my bullish view on Treasuries,” said Masazumi Fukuoka, a senior dealer in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s largest publicly traded bank. “There’s ample money that has to find its way into U.S. debt as long as concerns over the European debt crisis and a slowdown in the U.S economy remain.”
The 10-year Treasury yield fell two basis points, or 0.02 percentage point, to 1.49 percent at 8:55 a.m. in London, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2022 climbed 5/32, or $1.56 per $1,000-face amount, to 102 11/32. The yield dropped to a record 1.4387 percent on June 1.
The two-year rate was little changed at 0.21 percent today, having declined two basis points this week.
Household Sentiment
An index of consumer confidence in the euro region will worsen to minus 20 for July from minus 19.8 in June, a Bloomberg News survey of economists showed before the data is released on July 23. A gauge for manufacturing in the currency bloc will indicate contraction, based on a separate survey ahead of the report on July 24.
U.S. data on new-home sales on July 25, orders for durable goods the following day, and economic growth on July 27 are predicted to show expansion is slowing, according to economists’ estimates.
Sales of existing U.S. homes unexpectedly dropped and manufacturing in the Philadelphia region contracted for a third month, data showed yesterday, indicating economic weakness is extending into the second half of the year.
German 10-year bunds headed for a third weekly gain before European finance ministers hold a conference call to consider terms for Spain’s bank bailout.
The extra yield investors get for buying 10-year Treasuries instead of similar-maturity German bunds widened one basis point today to 28 basis points. The average over the past year is 14 basis points.
Spanish Yields
Spain’s 10-year benchmark bond yields yesterday climbed above the 7 percent threshold for the first time since Prime Minister Mariano Rajoy unveiled his fourth austerity package last week. That’s the level that prompted bailouts for Greece, Ireland and Portugal.
Treasuries fell yesterday on speculation the Federal Reserve will counter the slowdown later this year. Chairman Ben S. Bernanke said this week the central bank is ready to take further action to boost the recovery if necessary.
The Fed has purchased $2.3 billion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing, seeking to cap borrowing costs and stimulate the economy. While policy makers refrained from introducing a third round of purchases at a meeting last month, Bernanke indicated in two days of testimony in Washington this week that it’s an option. The Federal Open Market Committee is scheduled to meet July 31 and Aug. 1.
Operation Twist
The central bank plans to sell as much as $8 billion of Treasuries due from September 2014 to April 2015 today as part of program known as Operation Twist. The Fed is swapping short- term Treasuries in its holdings for longer maturities to put downward pressure on long-term borrowing costs.
“Our economists think that QE is a high probability,” said Bin Gao, head of interest-rate research for Asia and the Pacific at Bank of America Corp. in Hong Kong. “I don’t think yields can move a lot lower.” Ten-year rates will climb to 1.75 percent by year-end, Gao said.
Deutsche Bank AG forecasts the yield will advance to 2.25 percent by then as the economy starts to pick up. Improving household finances will lead to stronger consumption, Joseph A. LaVorgna, Carl J. Riccadonna and Brett Ryan, economists for the company in New York, wrote in a report yesterday.
Bank of America and Deutsche Bank are two of the 21 primary dealers that trade directly with the Fed.
The annualized pace of growth slowed to 1.5 percent in the second quarter from 1.9 percent in the first, Bloomberg surveys of economists showed before the Commerce Department reports the figure on July 27.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
