BLBG:Treasuries Snap Gain Before Auctions, Presidential Vote
Treasuries snapped a gain before the U.S. auctions $72 billion of coupon-bearing debt this week, starting with a $32 billion three-year sale today.
Government securities rose yesterday as investors sought the relative safety of U.S. debt while Americans head to the polls today to decide whether President Barack Obama or challenger Mitt Romney will guide the world’s biggest economy for the next four years. Whoever wins will face the job of avoiding the so-called fiscal cliff of $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts.
“Yields will gradually go up,” said Kei Katayama, who buys U.S. government debt in Tokyo for Daiwa SB Investments Ltd., which manages the equivalent of $62 billion at the unit of Japan’s second-largest brokerage. “The basic economic situation is good. Either candidate will try to avoid a severe negative effect from the fiscal cliff.”
The U.S. 10-year note yielded 1.69 percent as of 6:52 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent security due in August 2022 changed hands at 99 13/32. Yields declined three basis points, or 0.03 percentage point, yesterday. The record low was 1.38 percent set July 25.
The 10-year rate will be 1.73 percent at Dec. 31 and 2.03 percent by the end of June, according to a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.
Japan’s 10-year yield was little changed at 0.76 percent, versus this year’s low of 0.72 percent on July 23.
RBA Holds
The Reserve Bank of Australia held borrowing costs unchanged at a meeting today after lowering them last month.
“The United States is recording moderate growth, while recent data from China suggest growth there has stabilized,” RBA Governor Glenn Stevens wrote in a statement.
A U.S. report on Nov. 2 showed payrolls expanded by 171,000 last month, following a 148,000 gain in September that was larger than first estimated. The unemployment rate rose to 7.9 percent from 7.8 percent.
The last three-year auction on Oct. 9 drew bids for a record 3.96 times the amount of debt available. The U.S. is scheduled to sell $24 billion of 10-year notes tomorrow and $16 billion of 30-year bonds on Nov. 8.
Election Concerns
Will Tseng, who invests in bonds at Taipei-based Shin Kong Life Insurance Co., said he bought Treasuries last week to prepare for today’s vote.
“Before the election, market volatility may rise,” said Tseng, who helps oversee the equivalent of $55.4 billion. “Cash may go into safe havens.”
Bob Doll, an adviser to BlackRock Inc. (BLK), the world’s biggest money manager with $3.68 trillion in assets, wrote in a report that the election may be so close that the outcome will depend on recounts and late ballots.
“Should this happen, we may not know the result for several days or even weeks,” Doll wrote yesterday on BlackRock’s website.
Demand for safety in Europe sent yields on two-year German bunds below zero yesterday for the first time in almost two months, driven by concern Greece will be forced to leave the euro bloc.
Two-year bund yields fell to minus 0.01 percent. U.S. two- year notes yielded 29 basis points more than their German counterparts, the most since August.
Treasuries Rally
Treasuries have returned 15 percent since Obama took office on Jan. 20, 2009, according to Bank of America Merrill Lynch indexes. The Standard and Poor’s 500 Index handed investors a 91 percent gain including reinvested dividends, according to data compiled by Bloomberg.
Even as Obama increased the U.S. publicly traded debt to a record $10.8 trillion as of August, investors have been willing to accept lower interest rates as the central bank scoops up bonds as a way to sustain the expansion and as inflation holds in check.
After buying $2.3 trillion of Treasuries and mortgage- related bonds, the Federal Reserve on Oct. 24 reiterated its plan to continue unprecedented stimulus measures by purchasing $40 billion of home-loan securities a month until the labor market improves “substantially.”
The Fed is also swapping shorter-term Treasuries in its holdings with those due in 6 to 30 years as part of its efforts to support the U.S. economy by putting downward pressure on long-term borrowing costs.
The U.S. central bank plans to buy as much as $5.25 billion of Treasuries maturing from November 2018 to August 2020 today, according to Federal Reserve Bank of New York’s website.
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.45 percentage points. Consumer prices have increased at an average rate of 2.5 percent for the past decade, after the inflation rate reached 14.8 percent in 1980.
Investors bid a record $3.17 for each dollar of the $1.79 trillion in notes and bonds sold by the U.S. Treasury this year, compared with $3.04 in 2011 and $2.99 in 2010, according to data compiled by Bloomberg.
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.
