BLBG:Treasuries Snap Decline Before Jobless Claims Report
Treasuries snapped a four-day slide before a U.S. report economists said will show initial claims for unemployment insurance climbed, reinforcing a slowdown in global economic growth.
U.S. fixed-income securities and other investments are drawing demand from investors outside the country who are seeking safety in dollar-denominated assets, said Alexander Matturri, the chief executive officer of S&P Dow Jones Indices, the world’s largest provider of financial market indexes. The Treasury Department is scheduled to sell $16 billion of 30-year debt today, following a 10-year auction yesterday and a three- year sale on Aug. 7.
“Yields will go down,” said Youngsung Kim, head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $100.1 billion in assets. “It’s a hard time for the global economy.”
Benchmark 10-year rates were little changed at 1.69 percent as of 1:25 p.m. in Tokyo, according to Bloomberg Bond Trader data. The record low was 1.38 percent set July 25. The price of the 1.625 percent security due in August 2022 was 99 13/32 today.
Weekly jobless claims probably rose to 370,000 from 365,000, according to a Bloomberg News survey of economists before the Labor Department issues the figure today. The nation added more jobs in July than economists expected, while the unemployment rate rose to 8.3 percent from 8.2 percent, a Labor Department report showed Aug. 3.
U.S. Assets
“We’ve certainly seen a lot of flows into U.S.-based products,” Matturri said yesterday on Bloomberg Television’s “In the Loop” with Betty Liu, Dominic Chu and Sheila Dharmarajan. “Not that the U.S. economy is a barn-burner, but it’s a safer economy.”
German exports dropped 1.5 percent in June from May, a government report showed yesterday. Singapore cut the upper end of its economic growth forecast for 2012 yesterday as a global slowdown from Europe to China weighs on the island’s expansion.
Central bankers finished meetings in South Korea and Japan today without taking any action.
The Federal Reserve is scheduled to buy as much as $1.5 billion of Treasury Inflation Protected Securities maturing from January 2019 to February 2042 today, according to the website of its New York branch. The purchases are part of the central bank’s effort to swap shorter-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs.
The Fed said Aug. 1 it will act if necessary to boost growth and reduce an unemployment rate that has been 8 percent or higher for more than three years.
Corporate Debt
While Treasuries offer appeal to investors seeking a haven, corporate bonds are outperforming.
U.S. government securities have returned 1.9 percent in 2012 as of yesterday, versus 7.8 percent for an index of investment-grade and high-yield company debt, according to Bank of America Merrill Lynch data.
The MSCI All-Country World Index (MXWD) of stocks handed investors a 9.8 percent gain including reinvested dividends, according to data compiled by Bloomberg.
Samsung Asset Management’s Kim said he favors 10-year bonds in South Korea because they yield about 3 percent.
S&P Dow Jones’s Matturri said investors seeking yield have increased purchases of dividend-paying investments.
Christian Zugel, president of Zais Group LLC, a hedge fund with $6.2 billion in assets, said he is investing in asset- backed securities. He spoke yesterday on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle.
Auction Results
Zais Group’s clients are seeking returns of about 8 percent, he said. “I believe we can deliver that,” said Zugel, who is based in Red Bank, New Jersey.
Treasury 10-year yields rose to the highest level in five weeks yesterday as a $24 billion sale of the notes attracted the least demand in three years.
The bid-to-cover ratio, which gauges demand by comparing bids submitted with the amount of securities offered, was 2.49, the lowest level since August 2009.
The 30-year bonds being sold today yielded 2.765 percent in pre-auction trading, versus the record low of 2.58 percent at the prior sale July 12. Investors bid for 2.70 times the amount of debt offered last month versus the average of 2.68 percent for the past 10 sales.
Indirect bidders, the investor group that includes foreign central banks, purchased 36.8 percent of the securities, the most since September at the monthly auctions.
Ten-year yields will decline to 1.64 percent by the end of the third quarter, according to a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.
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
