BLBG:Treasuries Head for Biggest Weekly Gain in 2013
Treasuries headed for the steepest weekly gain in 2013 as efforts to trim the European Union budget raised concern the region’s economy will have trouble picking up, boosting appetite for the relative safety of U.S. debt.
Government securities drew demand after 10-year yields climbed to 2.06 percent this week, the highest since April. European Central Bank President Mario Draghi signaled yesterday a rising euro may hurt the currency bloc’s recovery. EU leaders are scheduled to finish a two-day meeting on the budget today, with U.K. Prime Minister David Cameron calling for cuts.
Benchmark 10-year yields were little changed at 1.95 percent as of 6:57 a.m. in London, according to Bloomberg Bond Trader prices. The 1.625 percent note maturing in November 2022 changed hands at 97 3/32. The rate has fallen six basis points, or 0.06 percentage point, this week. It’s set for the biggest decline since the period ended Dec. 28.
“European uncertainty has tempered the rise in Treasury yields,” said Su-Lin Ong, an economist and fixed-income strategist at Royal Bank of Canada in Sydney. “Yields should hold” this week’s decline. The 10-year rate will finish the first quarter little changed from today’s level, though it may rise to 2.10 percent by June 30, Ong said.
Japan’s 10-year rate was little changed at 0.76 percent. This year’s range has been 0.72 percent to 0.84 percent.
Cameron’s Demand
Cameron demanded cuts in a proposed seven-year subsidies package of 973 billion euros ($1.3 trillion). The amount was trimmed once, from 1.047 trillion euros in November, and it is less than the 994 billion euros spent in the budget period expiring this year.
“The numbers that were put forward were much too high,” Cameron told reporters yesterday. “They need to come down, and if they don’t come down, there won’t be a deal.”
Yields held below 2 percent yesterday as investors sought U.S. debt after Draghi signaled concern the euro’s strength will hamper policy makers’ efforts to boost growth in the 17-nation region.
The euro has climbed 5.1 percent against the dollar in the past three months, according to data compiled by Bloomberg.
“The exchange rate is not a policy target, but it is important for growth and price stability,” Draghi said at a press conference in Frankfurt yesterday after the ECB kept its benchmark rate at a record low of 0.75 percent. He also said risks to the economic outlook remain on the downside.
U.S. sovereign debt has returned 0.2 percent this month, according to a Bank of America Merrill Lynch index. It handed investors a 1 percent loss in January, the worst start to a year since 2009, the data show, on signs of improvement in the U.S. economy.
Trade Balance
The Commerce Department will probably say today that the trade deficit in the world’s biggest economy was $46 billion in December, according to the median estimate of economists surveyed by Bloomberg News. If confirmed, that would be a narrowing from the previous month, when imports exceeded exports by $48.7 billion, the widest gap since April.
Other reports this month showed expansion in service industries, the largest component of the U.S. economy, and an unexpected increase in consumer confidence.
The world’s biggest bond dealers are growing more reluctant to hold Treasuries, based on Federal Reserve data.
Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of the 21 primary dealers of U.S. government securities decreased their holdings to $72 billion as of Jan. 30, the least in three months, the Fed reported yesterday.
The figure compares with $146 billion on Dec. 19, the most in data compiled by Bloomberg dating back to 1997.
Output Gap
Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $35.2 billion, said he’s sticking to his bullish outlook on Treasuries. The U.S. economy isn’t living up to its potential, he said.
“Yields may decline,” Nakamura said. “The negative output gap continues.” Ten-year rates may fall to a record low 1 percent this year, he said.
The difference between actual and potential gross domestic product, the so-called output gap, is negative 3.9 percentage points, according to data compiled by Bloomberg. The figures compares with negative 4.4 percentage points in the U.K. and negative 1.9 percentage points in Japan.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
