BLBG:Treasuries Snap Decline Before Jobless Claims Report
Treasuries snapped a four-day decline before a U.S. report that economists said will show initial claims for unemployment insurance increased last week, adding to signs global economic growth is slowing.
U.S. government securities and other investments are drawing demand from investors outside the country who are seeking safety in dollar-denominated assets, said Alexander Matturri, chief executive officer at S&P Dow Jones Indices, the world’s largest provider of financial market indexes. The Treasury is scheduled to sell $16 billion of 30-year bonds today, following a 10-year auction yesterday and a three-year sale on Aug. 7.
“With global growth expectations being revised downwards, you would expect Treasuries to do well and equities to come off,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “We have seen buying from real money accounts in the belly of the curve today,” he said, referring to securities due between three and seven years.
The yield on the new benchmark 10-year note, which was sold yesterday, was little changed at 1.69 percent at 10:42 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent security due in August 2022 traded at 99 14/32.
Jobless claims rose to 370,000 last week from 365,000, according to a Bloomberg News survey before the Labor Department report today. The nation added more jobs in July than economists forecast, while the unemployment rate rose to 8.3 percent from 8.2 percent, the Labor Department said Aug. 3.
‘Safer Economy’
“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. The U.K. trade deficit widened to a record in the second quarter, the Office for National Statistics said today.
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.
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, compared with 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.
Christian Zugel, president of Zais Group LLC, a hedge fund with $6.2 billion in assets, said he is investing in asset- backed securities.
Zais Group’s clients are seeking returns of about 8 percent, he said. “I believe we can deliver that,” Zugel, who is based in Red Bank, New Jersey, said on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle.
Auction Results
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 2.78 percent in pre-auction trading, versus the record low of 2.58 percent at the previous sale on July 12. Investors bid for 2.7 times the amount of debt offered last month, up from 2.4 percent in June.
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; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
