BLBG:Treasuries Snap Gain Before U.S. Manufacturing, Fed Announcement
Treasuries snapped a two-day gain before an industry report that economists said will show U.S. manufacturing returned to growth last month, easing pressure on the Federal Reserve to announce more bond purchases.
U.S. government securities earlier fell along with their German counterparts after Italy’s Prime Minister Mario Monti said his country doesn’t need to be bailed out, reducing demand for the safest assets. The Fed will decide against a new round of quantitative easing when it ends a two-day meeting today, according to economists surveyed by Bloomberg News. A private report showed the U.S. added more jobs than forecast in July.
“There’s a bit of caution in the Treasury market,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “People are cautious in case they don’t deliver much. Treasuries are still very much on the expensive side.”
The benchmark 10-year yield rose two basis points, or 0.02 percentage point, to 1.49 percent at 8:18 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2022 fell 6/32, or $1.88 per $1,000 face amount, to 102 11/32. The 30-year yield also increased one basis point to 2.56 percent.
The Institute for Supply Management’s factory index climbed to 50.2 last month from 49.7 in June, according to the median estimate of economists surveyed by Bloomberg News. A reading of 50 is the dividing line between expansion and contraction. Construction spending probably climbed for a third month in June, a separate Bloomberg survey showed.
Bond Purchases
Companies in the U.S. added 163,000 workers in July, according to figures from Roseland, New Jersey-based ADP Employer Services. The median estimate in a Bloomberg News survey called for an advance of 120,000.
The Federal Open Market Committee will refrain from starting new bond purchases, 88 percent of economists said before today’s decision in Washington. Forty-eight percent said the FOMC will announce the buying at its Sept. 12-13 meeting, according to the July 25-27 survey of 58 economists.
Spanish bonds rose before a European Central Bank meeting tomorrow that may end with new measures to contain the region’s debt crisis.
Italy’s economy doesn’t need a bailout, Monti said in an interview with Finnish newspaper Helsingin Sanomat. The country may need some support as “markets are slow to understand the measures it has taken and all it has achieved,” the newspaper reported him as saying.
Potential ECB action “is informing the better tone in Spanish and Italian markets, which feeds back into the bearish tone for safe-haven paper such as Treasuries,” said Richard McGuire, a fixed-income strategist at Rabobank International in London. “The outlook for Treasuries remains constructive” amid the global economic slowdown, he said.
Monthly Gain
Treasuries handed investors a 1.1 percent last month, compared with a 2 percent gain from German bonds, according to indexes compiled by the European Federation of Financial Analysts Societies.
Fed Chairman Ben S. Bernanke said on July 17 that policy makers are “looking for ways to address the weakness in the economy should more action be needed.” The central bank’s policy-setting Federal Open Market Committee said in January that its benchmark interest rate will stay at “exceptionally low levels” at least through late 2014, extending its pledge from the middle of 2013.
The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing, or QE, seeking to cap borrowing costs.
‘QE Forever’
Policy makers may end up buying bonds “forever,” according to Mark Mobius, executive chairman of Templeton Emerging Markets Group.
“They are not going to stop printing,” Mobius said at a briefing in Tokyo, referring to the U.S. central bank. “It’s no longer going to be QE1, QE2, QE3, it’s going to be QE-forever until unemployment goes down.” His company manages about $50 billion in assets.
The central bank will tomorrow buy as much as $2 billion of Treasuries due from February 2036 to May 2042. The purchases are part of the so-called Operation Twist that swaps short-term debt in the Fed’s holdings for longer maturities.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net
