BLBG:Treasuries Have Worst Start to a Year Since 2009
Treasuries are off to their worst start to a year since 2009 as money managers prepared to bid at three debt sales this week, starting with a $32 billion note auction today.
U.S. government securities handed investors a 0.7 percent loss in 2013 as of yesterday, according to Bank of America Merrill Lynch indexes. It was the biggest decline for a first week since the Treasury Department was preparing to ramp up debt sales four years ago as it tried to snap a recession. Bonds slid after the Federal Reserve indicated it may stop its debt purchases in 2013 and as lawmakers averted the so-called fiscal cliff.
“The Fed may reduce the amount of Treasuries it buys as the economy grows,” said Kei Katayama, who buys non-yen debt in Tokyo for Daiwa SB Investments Ltd., which manages the equivalent of $56.8 billion and is a unit of Japan’s second- largest brokerage. “Yields will go up, but only gradually.”
Benchmark 10-year rates held at 1.89 percent as of 2:29 p.m. in Tokyo, based on Bloomberg Bond Trader prices. The 1.625 percent note maturing in November 2022 changed hands at 97 5/8. The yield climbed to 1.97 percent on Jan. 4, the most since April.
Katayama is avoiding longer maturities, he said, the securities that will fall most if yields rise. Ten-year rates will probably climb to 2.14 percent by the close of 2013, based on a Bloomberg survey of economists, with the most recent projections given the heaviest weightings.
Worst Performers
Treasuries due in 10 years and longer were the world’s worst-performing bonds in local currency terms in the past month with a 4.2 percent loss, based on 144 bond indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies.
Japan’s 10-year rate fell one basis point to 0.825 percent today. It was as high as 0.84 percent yesterday, the most since August.
The U.S. plans to sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds over three days starting today. The amounts are unchanged from the last time the government issued this combination of securities in December.
Three-year Treasuries yielded 0.39 percent, or 14 basis points more than the upper end of the Fed’s target range for overnight loans. The three-year rate touched a high of 0.42 percent on Jan. 4, the most since October. A basis point is 0.01 percentage point.
At the last three-year sale on Dec. 11, direct bidders that buy directly from the Treasury purchased a record 24.8 percent of the notes.
Fed Purchases
The Fed said in December that it plans scoop up $45 billion of Treasuries a month in addition to $40 billion per month of mortgage-debt purchases begun in September. Chairman Ben S. Bernanke uses this strategy to spur the economy by putting downward pressure on benchmark interest rates.
The central bank is scheduled to buy as much as $3.75 billion of Treasuries due from October 2018 to December 2019 today, according to the Fed Bank of New York website.
“Several” Fed officials said it would “probably be appropriate to slow or stop purchases well before the end of 2013,” according to minutes of their Dec. 11-12 meeting issued last week.
The U.S. economy will grow about 2 percent this year, which isn’t enough to send yields much higher, said Hideo Shimomura, who helps oversee the equivalent of $68.4 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest publicly-traded bank. Ten-year rates may fall to 1.5 percent in the next two months, he said.
Premature Speculation
“I’m not positive on the economy,” Shimomura said. “It’s premature to anticipate when the Fed might stop buying.”
U.S. annual economic growth has averaged 1.7 percent in the past decade though September, according to Commerce Department figures. For the period, 10-year yields were as high as 5.32 percent in 2007, and they set a record low of 1.38 percent last year.
While Congress last week passed budget measures that averted most of more than $600 billion in automatic tax increases and federal spending cuts that were scheduled to start this year, U.S. lawmakers will address the issue of deficit reduction as they negotiate raising the debt ceiling.
The U.S. reached the statutory limit on Dec. 31, and the Treasury Department began using extraordinary measures to finance the government. It will exhaust that avenue as soon as the middle of February, according to the Congressional Budget Office.
President Barack Obama is close to choosing White House Chief of Staff Jack Lew to replace Timothy F. Geithner as Treasury secretary, according to two people familiar with the matter.
The next Treasury secretary will have to work with Congress to raise the $16.4 trillion ceiling.
To contact the reporter 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
