BLBG: Treasuries Little Changed After Obama Pledges to Revive Economy
By Wes Goodman
Nov. 17 (Bloomberg) -- Treasuries were little changed after President-elect Barack Obama said he will do ``whatever it takes'' to revive the U.S. economy, raising speculation the government will sell more debt to pay for his plans.
Notes halted a two-week advance after Obama, in an interview yesterday on CBS News's ``60 Minutes,'' said the government needs to assist U.S. automakers. Asian stocks erased earlier losses, helping curtail demand for the relative safety of sovereign debt.
``I sold this morning,'' said Kevin Yang, who oversees $1 billion of Treasuries at Shinkong Life Insurance Co. in Taipei, Taiwan's second-largest life insurer. ``The Treasury market will be affected by the new supply. The rally is going to pause.''
Two-year note yields rose one basis point to 1.22 percent as of 1:56 p.m. in Tokyo, according to BGCantor Market Data. The 1.5 percent security maturing in October 2010 traded at a price of 100 17/32. Ten-year yields held at 3.73 percent.
The MSCI Asia Pacific Index of regional shares was up 0.1 percent, after earlier sliding as much as 2.2 percent.
Obama will in January take over an economy that contracted 0.3 percent in the third quarter and is forecast to shrink 2 percent in the final three months of the year, based on a Bloomberg survey of economists.
Under normal circumstances, Obama said, allowing General Motors Corp. to enter bankruptcy, restructure and then emerge as ``a viable operation'' might have been a preferred route. Now, ``you could see the spigot completely shut off so that it would not potentially permit GM to get back on its feet,'' he said.
Safe Havens
Japan's economy, the world's second-biggest, entered its first recession since 2001, a government report showed today. The yield on the government's 1 percent note due September 2013 fell 1 basis points to 0.87 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker.
U.S. government securities returned 6.5 percent so far this year, according to Merrill Lynch & Co.'s U.S. Treasury Master index, as tumbling credit markets and a global recession spurred demand for the safest assets. German bonds gained 8 percent, while the figure was 1.7 percent in Japan.
Corporate bonds in the U.S. handed investors a loss of 15 percent.
A weekly survey of fund managers by Ried, Thunberg & Co., an economic advisory company in Jersey City, New Jersey, shows investors became more bearish on U.S. government securities.
The measure of money manager sentiment through the end of June fell to 41 for the seven days ended Nov. 14 from 42 the week before. Readings below 50 indicate investors expect bonds to decline. The company surveyed 28 fund managers overseeing $1.42 trillion.
Rate Cut
Treasuries rose initially on speculation two Federal Reserve manufacturing reports today will encourage policy makers to reduce borrowing costs next month.
``There is still some room for yields to fall,'' said Edward Lee, a fixed-income strategist in Singapore at Standard Chartered Plc, a U.K. lender that specializes in emerging markets. ``The economic data should be very weak.''
Futures on the Chicago Board of Trade show an 84 percent chance the Fed will halve its target for overnight bank loans from 1 percent at its next meeting on Dec. 16. The odds rose from 64 percent a week ago. The rest of the bets are for a quarter-point reduction.
Manufacturing Slump
Industrial production increased 0.2 percent in October, following a 2.8 percent slide in September that was the most in almost 34 years, according to the median forecast in a Bloomberg News survey of economists before the Fed reports the figure today in Washington.
A report from the New York Fed may show manufacturing in the state contracted this month at the fastest pace since at least 2001.
The Fed may consider buying Treasuries to hold down yields if the global financial crisis deepens, according to Goldman Sachs Group Inc., one of the 17 primary dealers that trade with the central bank.
``Fed officials could announce specific targets for longer- term interest rates and commit to purchasing enough securities to achieve those targets,'' Goldman economists led by Jan Hatzius in New York wrote in a Nov. 14 report.
Yields indicate banks are less willing to lend. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 2.10 percentage points from 2.03 percentage points a week ago.
Obama may push the annual U.S. budget deficit to a record $1 trillion in the financial year through September, according to said David Sloan, a senior economist at 4Cast Inc. market analysis company in New York.
The deficit last month ballooned to $237.2 billion, compared with $56.8 billion in October 2007, after Treasury Secretary Henry Paulson bought shares in eight of the biggest U.S. banks as part of his $700 billion economic rescue plan.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
