BLBG:Treasuries Set to Beat Corporate Bonds in November
U.S. government bonds were poised to beat corporate debt this month for the first time since May as the pending fiscal cliff and Europe’s debt crisis drove demand for safety.
Treasuries returned 0.5 percent in November as of yesterday, while bonds in an index of investment-grade and high- yield debt were little changed, according to Bank of America Merrill Lynch data. Investors tracking the Standard & Poor’s 500 Index earned 0.6 percent, according to data compiled by Bloomberg. Consumer spending cooled in October, economists said before a report today.
“There’s a flight to quality,” said Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $40 billion and is part of Japan’s third-biggest bank. “The government may increase taxes on higher-end households. That’s negative for the stock market and the economy.”
The benchmark 10-year yield was little changed at 1.62 percent at 8:07 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 was at 100 3/32. The yield fell eight basis points, or 0.08 percentage point, this month, its first decline since July.
The yield will decline to 1 percent by the end of 2013, said Nakamura, who correctly predicted gains in Treasuries this year. A Bloomberg survey of banks and securities companies projects an increase to 2.27 percent, with the most recent projections given the heaviest weightings.
Fiscal Cliff
To avoid the so-called U.S. fiscal cliff of tax increases and spending cuts set to take effect in January, President Barack Obama is seeking to overcome Republican resistance to his plan to let tax cuts expire for households earning more than $250,000 a year.
Treasuries and German bunds are “overbought,” while some corporate bonds are attractive, said Andreas Utermann, global chief investment officer in Frankfurt at Allianz Global Investors, which oversees the equivalent of $362.6 billion. German 10-year notes yield 1.37 percent.
Investors should favor company debt due in two to four years, Utermann said.
“You need to stay relatively short- to medium-term to make sure that you don’t get caught by a sudden rise” in longer-term borrowing costs, he said yesterday on Bloomberg Television’s “On the Move” with Francine Lacqua in London. “Then with a buy-and-hold strategy with a view to getting the yield to maturity on these bonds. That’ll probably just about compensate you for inflation.”
Inflation Rate
Treasury 10-year yields are less than the inflation rate. Consumer prices rose at a 2.2 percent pace in October, the Labor Department Nov. 15.
“There are not-so-risky corporate bonds that offer higher yields, not tremendously higher, but at least the yield is above the level of inflation,” Jeffrey Rosenberg, New York-based chief investment strategist for fixed income at BlackRock Inc. (BLK), the world’s biggest asset manager overseeing $3.67 trillion, said yesterday on the “Bloomberg Surveillance” radio program with Tom Keene and Michael McKee in New York.
Treasuries drew support in November, boosting demand at auctions of two-, five- and seven-year notes this week, as the U.S. economy had trouble gaining traction and European officials put together a rescue plan for Greece’s finances.
U.S. household purchases were unchanged in October, after increasing 0.8 percent in September, based on the median estimate from 79 economists surveyed by Bloomberg News before the Commerce Department report at 8:30 a.m. New York time.
Greek Debt
Greece’s debt burden is unsustainable even after the nation won an aid package this month, Moody’s said in a report yesterday. The probability of default on privately held Greek debt is “high,” the company said.
The Federal Reserve is selling shorter-term Treasuries from its holdings and buying those due in six to 30 years as it seeks to spur the economy by capping borrowing costs, under a program scheduled to end in December.
The central bank plans to purchase as much as $2.25 billion of Treasuries maturing from February 2036 to November 2042 today, according to the Fed Bank of New York’s website.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
