BLBG:Treasuries Extend Gain as Surprise Index Falls
Treasuries are extending gains in December after rallying last month as an index measuring positive or negative surprises in economic data fell to a two- month low.
The Citigroup Economic Surprise Index dropped to 33 on Dec. 4, the least in two months. Labor Department data tomorrow may show U.S. payrolls rose by 86,000 in November, the smallest gain since June, based on a Bloomberg News survey of economists. The forecast is fueling speculation the Federal Reserve is preparing to announce a new round of bond purchases for 2013 at its next meeting Dec. 11-12 to spur the economy.
Benchmark 10-year yields were little changed at 1.59 percent as of 12:58 p.m. in Tokyo, according to Bloomberg Bond Trader data. The rate is within a quarter percentage point of the record low. The price of the 1.625 percent security due in November 2022 was 100 10/32.
“The recovery’s not fast enough for the Fed,” said Will Tseng, who invests in U.S. bonds at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $55.7 billion in assets. “They’ll be pushing more stimulus. It’ll be impossible for yields to reach 2 percent this year.”
Japan’s five-year rate was 0.16 percent, the lowest level since 2003.
Treasuries have returned 0.7 percent since the end of October, or 7.4 percent at an annualized rate, according to Bank of America Merrill Lynch indexes. The gain is about double what investors earned in Japanese bonds, the figures show.
Term Premium
The U.S. 10-year term premium, a model created by Fed economists that includes expectations for interest rates, growth and inflation, was minus 0.96 percent. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
The Fed’s preferred measure of inflation expectations was 2.70 percent. The five-year, five-year forward break-even rate has averaged 2.75 percent for the past decade.
The Fed said Sept. 13 it will buy bonds until the job market improves “substantially.”
The central bank is snapping up $40 billion of mortgage bonds a month to put downward pressure on borrowing costs.
It is exchanging about $45 billion of short-term Treasuries from its holdings for longer-term debt each month under a program scheduled to end by Dec. 31.
The Fed plans to buy as much as $2.25 billion of securities maturing from February 2036 to November 2042 today, according to the Fed Bank of New York’s website. It’s also scheduled to purchase as much as $5.25 billion of debt due from December 2018 to November 2020.
Slower Growth
Economic growth will slow to 1 percent in the fourth quarter and the first three months of next year, from 2.7 percent in the July-to-September period, said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York.
“This has been an extraordinarily weak recovery,” Meyer said yesterday on Bloomberg Television’s “Surveillance” program with Tom Keene and Scarlet Fu. “We do think the Fed will engage with more easing at the next meeting.”
Initial claims for jobless insurance probably totaled 380,000 last week, a Bloomberg survey showed before the Labor Department report at 8:30 a.m. New York time today. Claims have averaged 376,000 this year.
The Treasury Department plans to announce today the size of 3-, 10- and 30-year auctions scheduled for next week.
The U.S. will sell $32 billion of 3-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds over three days starting Dec. 11, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey.
Treasuries Bet
Federated Investors Inc. (FII), the fifth-largest U.S. manager of fixed-income mutual funds, is betting Treasuries will outperform other debt for the first time since the global financial crisis intensified in 2008.
“The world has disappointed our expectations for growth,” Joseph Balestrino, senior fixed-income strategist who helps oversee $51.4 billion of assets at the Pittsburgh-based mutual- fund company, said in an interview earlier this week at Bloomberg News headquarters in New York. “It gets worse, before it gets better. This was a big directional move. We’ve been overweight credit for years.”
To contact the reporters 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
