BLBG:Fed Inflation Gauge Sets 10-Week Low Before Price Data
Treasury 10-year notes snapped three days of gains as signs U.S. lawmakers can reach an agreement on budget talks and avert the so-called fiscal cliff undermined demand for the safest assets.
Benchmark 10-year rates rose from the lowest in more than a week before Commerce Department data that economists said will increase the estimate of U.S. gross domestic product growth for the third quarter. The Treasury is scheduled to sell $29 billion of seven-year notes today after demand rose at a five-year debt auction yesterday and a two-year sale the day before.
“There’s some optimism about a potential agreement to the fiscal-cliff debate and so there’s a reaction in Treasuries, which are a bit weaker,” said Ralf Umlauf, a research analyst at Landesbank Hessen-Thueringen in Frankfurt. “The main focus today will be GDP figures in the U.S. and we think there will be a good number and that will be an additional burden on Treasuries.”
Ten-year yields rose one basis point, or 0.01 percentage point, to 1.64 percent at 6:15 a.m. New York time, according to Bloomberg Bond Trader data. The rate dropped six basis points, or 0.06 percentage point, over the past three days. The price of the 1.625 percent security due November 2022 was 99 7/8.
Treasury Secretary Timothy F. Geithner will meet each of the top four leaders in Congress a day after chief executives from more than a dozen U.S. corporations shuttled from the Capitol to the White House and pressed both sides for an agreement to prevent triggering automatic spending cuts and tax increases on Jan. 1. House Speaker John Boehner said yesterday he was “optimistic” lawmakers can avert the crisis.
GDP Data
U.S. government bonds have returned 0.6 percent this month as of yesterday, according to Bank of America Merrill Lynch indexes.
U.S. GDP grew 2.8 percent in the third quarter, according to a Bloomberg News survey of economists before today’s report, up from an initial estimate of 2 percent.
The report’s price gauge, which is tied to consumer spending and strips out food and energy costs, will indicate inflation of 1.3 percent, the same as the initial estimate a month ago, the survey showed. The rate has fallen from 2.2 percent in the first quarter and 1.7 percent in the second.
Separate figures today will show initial claims for jobless insurance declined and pending home sales increased, according to Bloomberg surveys.
World Economy
Treasury yields may rise as the economy improves, said Ali Jalai, who trades U.S. debt in Singapore at Scotiabank, a unit of Bank of Nova Scotia, one of the 21 primary dealers that underwrite U.S. debt.
“The data keep getting better and better in the U.S.,” Jalai said. “I’m not sure what the case for buying more bonds would be.”
Ten-year yields will climb to 1.85 percent in the first quarter of next year, according to Bloomberg surveys of strategists’ forecasts.
The world economy is in its best shape in 18 months, according to a Bloomberg Global Poll of investors.
Two-thirds of the 862 surveyed described the global economy as either stable or improving. That’s up from just over half who said that in September and is the most since May 2011.
Treasuries advanced yesterday after the $35 billion five- year sale drew the highest demand in eight years from direct bidders amid concern Congress faces headwinds in resolving the fiscal cliff.
Auction Demand
Direct bidders, non-primary dealer investors that place their orders with the Treasury, purchased 15.9 percent of the notes, the most since September 2004.
A $35 billion two-year auction on Nov. 27 drew orders for 4.07 times the amount of debt available, matching the record high from November 2011.
At the last seven-year sale in October, money managers bid for 2.56 times the amount offered, less than the 2.74 times average for the past 10 auctions.
The Fed is trying to sustain the economic expansion by buying bonds to put downward pressure on borrowing costs. It has scooped up $2.3 trillion of Treasuries and mortgage-related bonds since 2008 in two rounds of quantitative easing, or QE. Policy makers said on Oct. 24 they would extend stimulus by purchasing $40 billion of home-loan securities a month until the labor market improves “substantially.”
The central bank is also selling shorter-term Treasuries from its holdings and buying those due in six-to-30 years under a program known as Operation Twist, which is scheduled to end next month.
It plans to purchase as much as $5.25 billion of Treasuries maturing from February 2021 to November 2022 today, according to the Fed Bank of New York’s website.
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.
