Treasuries fell for the first time in five days after Cisco (CSCO) Systems Inc. reported quarterly profit that exceeded analysts’ estimates and amid optimism that U.S. politicians will avoid the so-called fiscal cliff.
The declines pushed benchmark 10-year note yields up from near a two-month low after Treasury Secretary Timothy F. Geithner said yesterday that it was “deeply implausible” that Republicans, who control the U.S. House, would trigger the automatic tax increases and spending cuts. Federal Reserve Bank of Dallas President Richard Fisher said policy makers can’t loosen policy infinitely. Demand for Treasuries as a haven waned as stock-index futures climbed.
“There’s less negative view on the fiscal cliff given that we’ve had some moves indicating both parties are increasingly willing to strike a compromise, and that might explain the pullback we’ve seen” in Treasuries, said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “We had moved to the bottom of the range in 10-year yields, and it was clear that in the absence of really negative news, we would see a pullback.”
U.S. 10-year yields increased three basis points, or 0.03 percentage point, to 1.62 percent at 9:26 a.m. London time, Bloomberg Bond Trader data show. The 1.625 percent security due in November 2022 declined 10/32, or $3.13 per $1,000 face amount, to 99 31/32. The rate slid to 1.57 percent yesterday, the lowest level since Sept. 5.
Cisco Profit
Cisco, the biggest maker of computer networking equipment, said profit excluding some costs was 48 cents a share in the first fiscal quarter, which ended Oct. 27, in a statement yesterday. That compares with analysts’ average estimate for 46 cents a share, according to data compiled by Bloomberg. Standard & Poor’s 500 Index futures advanced 0.6 percent, set for the biggest gain since Nov. 6.
The fiscal cliff refers to a standoff between President Barack Obama and Congress about how to curb U.S. debt through a mix of tax-code changes and reduction in federal spending. Without legislation, a combined $607 billion in tax increases and spending cuts will begin in January.
Kei Katayama, who buys U.S. government debt in Tokyo for Daiwa SB Investments Ltd., said he’s betting officials will avoid the fiscal cliff.
“It may take a little bit of time, but there will be some kind of compromise, and yields will go up,” said Katayama, who helps manage the equivalent of $62.5 billion at the unit of Japan’s second-biggest brokerage.
Higher Yields
Ten-year rates will increase to 2.04 percent by June 30, according to a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.
“I do not see us as that safety net” in the event that Congress fails to reach an agreement on the fiscal cliff, Fisher said in an interview on CNBC. “We just can’t continue down the road of an infinite expansion of monetary policy.”
Fisher, who doesn’t vote on the policy-setting Federal Open Market Committee this year, has been among the most vocal critics of further easing within the central bank. The FOMC last month voted to continue buying $40 billion in mortgage bonds per month until the employment outlook improves.
The Fed is also swapping short-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on borrowing costs.
It plans to sell as much as $8 billion of securities due from May 2015 to June 2015 today, according to the Fed bank of New York website.
The central bank is scheduled to issue the minutes of its October meeting today. Policy makers said last month they would “undertake additional asset purchases” if the outlook for the labor market does not improve “substantially,” raising speculation the central bank will buy more Treasuries.
U.S. retail sales fell 0.2 percent in October, following a 1.1 percent gain in September, according to the median forecast of 83 economists surveyed by Bloomberg News. A separate report today will show prices paid by producers grew more slowly last month.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
