BLBG:Treasuries Drop on Speculation Services Expanded
Treasuries declined for a second day before a report that economists forecast will show U.S. service industries expanded, reducing demand for the safety of fixed- income assets.
Ten-year Treasuries dropped with German bunds as stocks rallied after China vowed to maintain its growth target and an industry report showed euro-area manufacturing and services contracted less than economists forecast in February. A report later this week will show U.S. employers added 160,000 jobs last month after an increase of 157,000 in January, according to analysts in a Bloomberg News survey.
“Recent data pointed to economic recovery in the U.S.,” said John Stopford, head of fixed income at Investec Asset Management in London. “If this continues in the second half of the year, Treasury yields will have to rise.”
Benchmark 10-year yields rose two basis points, or 0.02 percentage point, to 1.90 percent at 7:21 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 2 percent note due February 2023 fell 6/32, or $1.88 per $1,000 face amount, to 100 29/32.
The rate on similar-maturity German bunds climbed three basis points to 1.44 percent.
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which cover almost 90 percent of the economy, was 55 in February, versus 55.2 in January, based on a Bloomberg News survey of economists. Readings greater than 50 signal expansion.
Fed Comments
An increase in Treasury yields may be limited as Federal Reserve policy makers signaled they are not about to close their doors on stimulus.
Fed Vice Chairman Janet Yellen said the central bank should continue its monthly bond buying while tracking the costs of the program, speaking yesterday in Washington. Fed Chairman Ben S. Bernanke in congressional testimony last week defended the Fed’s bond purchases, saying the benefits of reducing borrowing costs and fueling growth outweigh any potential costs.
The central bank has kept its benchmark target for overnight lending in a range of zero to 0.25 percent since 2008.
“While we expect yields to rise if the strength of the economic recovery continues, the Fed’s dovish rhetoric suggested they are not about the taper the bond-buying program and that should some support the Treasuries,” said Stopford.
Vincent Reinhart, chief U.S. economist at Morgan Stanley and the Fed’s former director of monetary affairs, said the central bank is seeking to increase costs in the economy.
“They said they want inflation,” Reinhart said yesterday on Bloomberg Television’s “Surveillance” program. “They’ll get it,” he said, reiterating a warning he made last year.
Best Performers
The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.55 percentage points. The average over the past decade was 2.2 percentage points.
Treasuries were the world’s best-performing bonds after accounting for a rallying dollar, underscoring demand for the relative safety of U.S. assets.
Government securities maturing in more than a year returned 0.5 percent in the past month, reflecting both changes in the bond prices and in currencies, according to data compiled by Bloomberg and the European Federation of Financial Bank of Analysts Societies. It was the biggest gain of 26 bond indexes around the world.
Without accounting for currency changes, bonds returned 2.2 percent in Spain and 2.1 percent in Ireland for the best performances in the past month, based on the indexes. The U.S. ranked 16th.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
