BLBG:Treasuries Rise This Week As BlackRock Says Fed To Act
Treasuries extended their biggest weekly gain in almost three months on speculation the Federal Reserve will increase its efforts to cap borrowing costs as soon as its September meeting to support the U.S. economy.
The Fed will be “aggressive,” and there’s a 50 percent chance it will act next month, said Rick Rieder, chief investment officer of fundamental fixed-income at BlackRock Inc. (BLK), the world’s largest money manager. A central bank stimulus plan is “almost a done deal,” Bill Gross, who runs the biggest bond fund at Pacific Investment Management Co., told CNBC.
“Treasury yields will decline,” said Hiromasa Nakamura, who invests in U.S. debt from Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $41.9 billion. “The Fed may take action fairly soon.” The danger facing the U.S. economy is that unemployment above 8 percent will curb consumer spending, Nakamura said.
The benchmark 10-year yield dropped two basis points, or 0.02 percentage point, to 1.66 percent at 8:17 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 rose 6/32, or $1.88 per $1,000 face amount, to 99 22/32.
The yield declined 14 basis points this week. The last time it fell as much was the period ended June 1.
Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their July 31-Aug. 1 meeting released Aug. 22.
Almost Zero
Chairman Ben S. Bernanke has pledged to keep the target for overnight bank lending at almost zero through at least late 2014. The central bank has also purchased $2.3 trillion of Treasury and mortgage-related debt to cap interest rates.
The Fed is swapping shorter-term Treasuries in the bank’s holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs. The central bank is scheduled to sell as much as $8 billion of Treasuries due from May 2015 to November 2015 today as part of the plan, according to the Fed Bank of New York website.
“Are they going to keep being aggressive?” Rieder said yesterday on Bloomberg Television’s “In the Loop” with Deirdre Bolton. “I think so. Rates are staying low for a long time.”
The central bank will probably implement a new set of bond purchases and extend its low-rate pledge beyond 2014, and it may announce the measures this year or next, according to BlackRock, which is based in New York, and oversees $3.56 trillion.
‘Done Deal’
“It’s almost a done deal,” Gross, who manages the $270 billion Pimco Total Return Fund (PTTRX) in Newport Beach, California, said yesterday on CNBC.
The U.S. added 163,000 jobs in July, the Labor Department said on Aug. 3, more than the 100,000 projected by economists surveyed by Bloomberg News. The same report showed the jobless rate climbed to 8.3 percent from 8.2 percent.
Orders for durable goods rose 2.5 percent in July from June, the most this year, based on a Bloomberg News survey before the Commerce Department report today.
Treasuries headed for a monthly loss, reflecting waning demand for safety following the employment report and European efforts to curb the region’s debt crisis. European Central Bank President Mario Draghi said on Aug. 2 that the bank may buy bonds in the region to bring down borrowing costs. The ECB is scheduled to meet on Sept. 6.
Monthly Loss
U.S. government securities have handed investors a 0.7 percent loss this month, versus a 0.2 percent decline for an index of sovereign bonds around the world, according to Bank of America Merrill Lynch data.
Treasury Inflation Protected Securities dropped 0.8 percent, the data show.
The difference between yields on 10-year notes and similar- maturity TIPS, a gauge of expectations for consumer prices over the life of the debt, widened to 2.32 percentage points from 2.10 percentage points a month ago. The average over the past decade is 2.15 percentage points.
Fed Bank of Chicago President Charles Evans said there are reasons for the central bank “to do more,” in an interview on CNBC. Fed Bank of St. Louis President James Bullard told CNBC yesterday signs of improvement in the economy would prompt him to oppose any program to buy bonds to reduce borrowing costs.
To contact the reporter on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
