BLBG:Treasuries Fall as Japan Shares Rally Before Note Sales
Treasuries fell for the first time in four days as a surge in Japanese shares cut demand for the relative safety of U.S. debt while investors prepared to bid at three note sales this week.
The longest maturities led declines, driven by speculation Japan’s Prime Minister Shinzo Abe will nominate Asian Development Bank President Haruhiko Kuroda as Bank of Japan (8301) governor, raising the likelihood of increased monetary stimulus this year. The U.S. is scheduled to auction $35 billion of two- year debt today, the same amount of five-year securities tomorrow and $29 billion of seven-year notes on Feb. 27.
“Investors are buying stocks and selling bonds,” said Kazuaki Oh’e, a bond salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “Kuroda’s appointment would be good news for the Japanese economy.”
Benchmark 10-year U.S. yields increased one basis point, or 0.01 percentage point, to 1.97 percent as of 7:01 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2 percent security due in February 2023 fell 3/32, or 94 U.S. cents per $1,000 face amount, to 100 7/32.
Treasuries have declined 0.8 percent this year after accounting for interest payments, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index (MXWD) of shares returned 4.4 percent.
Two-year notes yielded 0.25 percent, matching the upper end of the Federal Reserve’s target range for overnight loans between banks. Yields on shorter maturities tend to be anchored by what the Fed does with its benchmark rate, while longer-term Treasuries are more influenced by the outlook for the economy and inflation.
Note Auction
At the last two-year auction on Jan. 28, indirect bidders, the investor class that includes foreign central banks, purchased 18 percent of the notes. The average for the prior 10 sales was 29.8 percent. Direct bidders, non-primary dealer investors that place their orders with the Treasury, purchased 30 percent of the notes, versus the average of 18 percent for the previous 10 auctions.
Abe is very likely to nominate Kuroda as BOJ governor, according to a government official with knowledge of the discussions. Japanese media including the Nikkei newspaper and Kyodo News earlier reported on the nomination.
Kuroda said on Jan. 11 the central bank should keep assisting the economy until the inflation rate rises to 2 percent. Consumer prices excluding fresh food fell 0.2 percent in December from a year earlier, the latest figures from the statistics bureau show.
JGBs Gain
Japan’s five-year government bond yield slid to a record low on speculation whoever takes over at the central bank will spur the economy by buying bonds to put downward pressure on borrowing costs. The rate fell one basis point to 0.12 percent, the lowest level since the government started to sell the securities in February 2000.
Japan’s Nikkei 225 Stock Average rose to its highest level since September 2008, while the MSCI Asia Pacific Index gained 0.3 percent. The yen slid to its lowest level since May 2010.
An Italian election yesterday and today and Federal Reserve Chairman Ben S. Bernanke’s testimony before U.S. lawmakers tomorrow and the next day may support Treasuries, said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank.
Polling in Italy, the world’s eighth-largest economy, has the potential to lead investors to seek the haven of U.S. debt, Shimazu said. Preliminary results are due today.
Bernanke will probably emphasize the need to keep buying U.S. bonds to support the economy, Shimazu said. The Fed is snapping up $85 billion of Treasury and mortgage-backed securities a month.
U.K. Downgrade
“Yields may fall in the very short term,” Shimazu said. Expansion in the U.S. economy will push 10-year rates above 2.5 percent by year-end, according to the economist.
U.K. Chancellor of the Exchequer George Osborne said he won’t give in to opposition calls to change his economic policy after Moody’s Investors Service’s decision to strip the nation of its Aaa status.
“Britain has a debt problem, built up over many years, and we have got to deal with it,” Osborne wrote in an article in yesterday’s Sun newspaper. “Far from weakening our resolve to deliver our economic recovery plan, this rating decision redoubles it.”
Chinese manufacturing growth may slow, according to a survey of companies. The preliminary reading of a Purchasing Managers’ Index was 50.4 in February, according to HSBC Holdings Plc and Markit Economics today. That compares with 52.3 for January, and readings above 50 indicate expansion.
Treasury 10-year yields will fall to 1.86 percent by the end of March and then rise to 2.30 percent by Dec. 31, based on a Bloomberg survey of financial companies, with the most recent projections given the heaviest weightings.
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
