BLBG:Treasuries Rise on Speculation Durable Goods Orders Fell
Treasuries rose for the first time in five days on speculation euro-area finance ministers meeting today will struggle to agree on a plan to clear an aid payment to Greece, underpinning demand for the safest assets.
The benchmark 10-year yield fell from the highest level in two weeks after pro-independence parties in Spain’s Catalonia won a majority in a regional vote, strengthening a drive for a referendum on secession. Thirty-year bonds led gains before reports this week that economists say will show U.S. consumer spending cooled in October and business investment dropped, hindered by Hurricane Sandy and the looming fiscal cliff of scheduled tax increases and spending cuts.
“Everybody is waiting for news on Greece,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “That and the political situation in Spain raise question marks for the market and that provides support for Treasuries. There is also uncertainty surrounding the fiscal cliff.”
The 10-year yield fell three basis points, or 0.03 percentage point, to 1.66 percent at 6:31 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 rose 10/32, or $3.13 per $1,000 face amount, to 99 22/32. The yield climbed to 1.70 percent on Nov. 23, the highest level since Nov. 7.
Euro-area finance chiefs are gathering in Brussels today, less than a week after an all-night meeting failed to yield agreement on Greece. At stake is the continuation of a three- year mission to return Greece to financial health.
A breakthrough depends on coming up with 10 billion euros ($13 billion) to fill the shortfall that emerged when Greece this month got two more years to meet deficit-reduction targets.
Damp Demand
Progress at the meeting may damp demand for the relative safety of Treasuries, said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets.
Catalan President Artur Mas, who called early elections in the region to force the debate on independence, won 50 of the 135 seats in the regional assembly for his Convergencia i Unio party, down from 62. The separatist Catalan Republican Left, known as the ERC, more than doubled its seats to 21 from 10. Two smaller parties that also back a plebiscite secured 16 seats.
Mas has pledged to hold a referendum within four years. In contrast, the ERC would be willing to declare independence unilaterally in 2014.
The 30-year Treasury yield declined three basis points to 2.80 percent after rising to 2.84 percent on Nov. 21, the most since Nov. 8.
Treasury Return
Investors in U.S. government securities have earned 0.5 percent in the four weeks through Nov. 23, according to Bank of America Merrill Lynch indexes.
The U.S. Commerce Department will say durable-goods orders, excluding transportation equipment, dropped 0.6 percent last month after increasing 2 percent in September, according a Bloomberg News survey of economists before the figures are released tomorrow.
Separate reports this week will show new home sales and consumer spending both slowed in October, according to separate Bloomberg surveys.
Ten-year yields will end the year at 1.74 percent, according to Bloomberg surveys. They will climb to 1.84 percent in the first quarter of next year, the predictions show.
‘Rocket Higher’
“I don’t think yields are going to rocket higher,” said Andy Cossor, the Hong Kong-based market strategist at DZ Bank, Germany’s fourth-largest lender. “The outlook for economic growth in the U.S. and Europe is none too impressive. The inflation outlook is by no means threatening.”
The 10-year yield will be 1.80 percent in six months, Cossor said.
The U.S. is scheduled to sell $35 billion of two-year debt tomorrow, the same amount of five-year notes the next day and $29 billion of seven-year securities on Nov. 29.
Treasuries fell last week on speculation President Barack Obama and lawmakers will reach an agreement to avert the so- called fiscal cliff, the more than $600 billion in tax increases and government spending cuts scheduled for the start of 2013 unless Congress acts.
The combination of Fed efforts to stimulate the economy by buying bonds and the potential slowdown should politicians fail to avert the fiscal cliff has made Treasuries the debt that money managers have to own.
“Treasuries offer little real value, but in the short term, it is just hard to be a bear,” said Donald Ellenberger, who manages $10 billion for Federated Investors Inc. (FII) in Pittsburgh, in a Nov. 19 telephone interview. The company has moved from significantly “underweight” Treasuries compared with benchmark performance measures to adding the securities. “The fiscal cliff is a big deal, and the Fed is determined to keep rates low.”
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.
