BLBG:Treasuries Are World’s Worst-Performing Bonds
Treasuries extended losses that made them the developed world’s worst-performing bonds after a gain in employment raised expectations the U.S. central bank’s efforts to spur economic growth will bear fruit in 2013.
U.S. government securities maturing in 10 years and longer handed investors a 1.3 percent loss in the past month, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies. It was the biggest decline of 144 bond indexes around the world. A report this week may show sales at U.S. retailers rose in February for a fourth month, based on a Bloomberg News survey of economists.
“I don’t recommend putting money in the Treasury market,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank. “The employment situation tells you that the U.S. economy is much better than last year.”
Benchmark 10-year yields increased one basis points, or 0.01 percentage point, to 2.06 percent as of 6:41 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2 percent note due February 2023 fell 1/8, or $1.25 per $1,000 face amount, to 99 16/32.
The extra yield investors demand to hold 10-year Treasuries instead of same-maturity German bunds widened to 52 basis points at the end of last week. It was the most since January 2011.
More Confident
Shimazu said he is growing more confident in his forecast for the rate to climb past 2.5 percent by Dec. 31. A Bloomberg News survey of economists projects the figure will rise to 2.29 percent, with the most recent projections given the heaviest weightings.
Japan’s 10-year rate rose one basis point to 0.66 percent today. The nation’s bonds due in a decade and longer returned 2.6 percent in the past month, ranking No. 6 of the 144 EFFAS indexes. Spain’s bonds rose 5.2 percent, the biggest gain.
The MSCI All-Country World Index (MXWD) of stocks gained 2 percent including reinvested dividends in the past month, according to data compiled by Bloomberg.
U.S. jobs increased by 236,000 last month, versus the 165,000 that economists expected. The unemployment rate fell to 7.7 percent from 7.9 percent. Retail sales probably rose 0.5 percent in February, following a 0.1 percent gain in January, based on responses from economists before the March 13 figures from the Commerce Department.
Retail Sales
In China, industrial production had the weakest start to a year since 2009, while lending and retail sales growth slowed, reports over the weekend showed.
The Federal Reserve is buying $85 billion of Treasury and mortgage debt a month to put downward pressure on borrowing costs.
The U.S. is scheduled to sell $32 billion of 3-year notes tomorrow, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on March 14.
A slowdown in U.S. inflation is aiding the Fed’s efforts to depress long-term borrowing costs even as the economy improves.
The personal consumption expenditures index deflator, the central bank’s favored inflation gauge, fell to 1.2 percent in January, the lowest level since October 2009. When 10-year yields rose as high as 2.08 percent at the end of last week, it increased the so-called real yield to 0.88 percentage point, the most since May 2011.
Real Yields
Growth in real yields is what Fed Chairman Ben S. Bernanke needs to persuade bond investors that he has inflation under control, even after pumping more than $2.5 trillion into the economy to spur growth.
“The Federal Reserve and Ben Bernanke are not concerned about inflation right now, and neither is the bond market over the short term,” Donald Ellenberger, who oversees about $10 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh, said in a telephone interview on March 1.
Jeffrey Gundlach, whose $39.5 billion DoubleLine Total Return Bond Fund beat 97 percent of its peers last year, said on March 5 that “relative value has swung more to the favor” of Treasuries.
Investors should favor 5- to 10-year maturities over longer-term debt because of the risk that yields will rise, Kathy A. Jones, Rob Williams and Collin Martin at Charles Schwab Corp. wrote on the company’s website March 8.
“We’ve become more cautious about holding long-term bonds over the past year,” according to Schwab, which is based in San Francisco and has about $2.01 trillion in client assets.
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
