BLBG:Treasury Yield Four Basis Points From One-Week High Before Debt Auctions
Treasury yields were within four basis points of the highest in a week on speculation investors will demand higher rates at $72 billion of note and bond sales that begin tomorrow, following a stronger-than-expected jobs report.
The U.S. is scheduled to auction $32 billion of three-year notes tomorrow, $24 billion of 10-year debt the following day and $16 billion of 30-year bonds on Feb. 9. Signs of economic growth have pushed U.S. government securities to a 0.3 percent loss this year, versus a 2.1 percent gain for corporate bonds, based on Bank of America Merrill Lynch indexes.
“Investors will realize that the U.S. economy is stronger than expected,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “They will push up yields.”
The 10-year note yielded 1.92 percent at 7:48 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 traded at 100 23/32. The yield climbed to 1.95 percent on Feb. 3, the most since Jan. 27. The record low was 1.67 percent set Sept. 23.
The yield on 10-year German bond declined four basis points to 1.9 percent.
Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, maintained their bearish stance on Treasuries.
Ried’s index on the market outlook through June was unchanged at 45 for the week ended Feb. 3. A figure below 50 shows investors expect Treasuries to decline.
Job Data
Treasuries tumbled Feb. 3 after the Labor Department said employers added 243,000 jobs in January. The median forecast of economists in a Bloomberg News survey was for 140,000. The jobless rate slid to 8.3 percent, the lowest in three years.
The difference between yields on 10-year notes and longer maturity bonds may widen as investors prepare for the sale of 30-year securities, the Treasury’s longest maturity, Barclays Capital Inc. said in its market-outlook report for today. The company is one of the 21 primary dealers that trade with the Federal Reserve.
The spread widened to 1.22 percentage points on Feb. 3, the most since September, according to data compiled by Bloomberg.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.
The central bank is scheduled to buy as much as $2 billion of securities due from February 2036 to November 2041 today as part of the plan, according to the New York Fed’s website.
Greece Concern
Treasuries snapped last week’s decline as European officials and Greek policy makers failed to produce an aid package for the nation.
“Treasuries will be bullish because the Greek debt solution is not going smoothly,” said Will Tseng, a Treasuries trader at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $52.1 billion in assets and is Taiwan’s second-largest life insurer.
Ten-year yields may fall to 1.7 percent during the first half of 2012, he said.
Greek political-party leaders must provide a response to demands by the European Union, European Central Bank and International Monetary Fund on economic measures, including wage cuts, by 11 a.m. local time today, a spokesman for the Pasok political party told reporters in Athens. The euro fell 0.5 percent to $1.3089.
Slow Inflation
Slow inflation has spurred demand for Treasuries, keeping yields down as President Barack Obama finances a $1.1 trillion budget deficit to boost an economy still growing at rates below the 20-year average. The Fed set an annual inflation target of 2 percent two weeks ago, and policy makers suggested they may conduct a third round of bond purchases.
“Any way you look at it, the Treasury market is still expecting rather benign inflation, and we will be in a low-rate environment for some time,” David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut, said Feb. 1 in a telephone interview.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.18 percentage points, from as high as 2.67 percent in April 2011.
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: Daniel Tilles at dtilles@bloomberg.net
