BLBG: Treasuries Little Changed as Investors Deterred by Low Yields
By Cordell Eddings and Susanne Walker
Nov. 17 (Bloomberg) -- Treasuries were little changed as two-year note yields at the lowest levels since January deterred investors even as reports showed producer prices and industrial production increased less than forecast.
Government securities surged yesterday after Federal Reserve Chairman Ben S. Bernanke indicated in a speech that the extended period of low borrowing costs may get even longer. Foreign purchases of U.S. debt totaled $44.7 billion in September compared with purchases of $28 billion a month earlier, according to Treasury data.
“We had a pretty good prop yesterday on Bernanke’s dovish comments,” said Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort. “There has been some profit-taking overnight. We bounced off lows on the weaker than expected industrial production numbers.”
The 10-year note yield rose one basis points, or 0.01 percentage point, to 3.35 percent at 11:13 a.m. in New York, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 fell 3/32, or 94 cents per $1,000 face amount, to 100 1/4.
The two-year note yield traded at 0.77 percent. It touched 0.76 percent yesterday, the lowest level since Jan. 23.
China remained the biggest foreign holder of U.S. Treasuries, after its holdings rose $1.8 billion to $798.9 billion, Treasury data showed. Japan, the second-largest holder, increased its holdings $20.3 billion to $751.5 billion.
‘Here to Stay’
Output at factories, mines and utilities rose 0.1 percent last month following an increase of 0.6 percent in September, according to Fed data. Producer prices in the U.S. gained 0.3 percent in October, smaller than forecast, following a 0.6 percent drop the previous month.
Bernanke, who is trying to cap consumer borrowing costs as part of his efforts to spur growth, said yesterday that “banks’ reluctance to lend will limit the ability of some businesses to expand and hire.”
“The emphasis on low inflation and economic slack solidifies the message once again that the Fed’s dovish stance of a lower for longer policy with respect to rates is here to stay,” John Spinello, chief technical strategist in New York at Jefferies Group Inc., wrote in a note to clients. The firm is one of 18 primary dealers that trade with the Fed.
Yields indicate the Fed has had some success in curbing loan costs. U.S. 30-year fixed mortgage rates fell to 4.98 percent yesterday from this year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.
Consumer Prices
Meanwhile, the variable interest rate on credit cards in the U.S. rose to 11.48 percent from this year’s low of 10.73 percent in March, Bankrate.com figures show.
Joblessness at a 26-year high is helping curb inflation, Labor Department figures may show this week.
The consumer price index, due tomorrow, increased 0.2 percent in October for a second month, the Bloomberg surveys show. Prices declined 0.3 percent from a year ago, according to the surveys.
“The market is data-driven, and worried about uncertainty,” said Gary Jenkins, head of credit research at Evolution Securities Ltd in London. “Clearly if the market sees data coming out that suggest a higher probability for inflation, this will be negative for bonds.”
The cost to hedge against losses on Treasuries using credit-default swaps climbed to the highest level in almost four months, indicating investors are becoming less confident in U.S. securities. Swaps on U.S. government debt in euros for five years increased to 31.13 basis points yesterday, the highest level since July 24. That means it costs 31,130 euros ($46,500) a year to protect 10 million euros of debt.
The credit-default swaps rose yesterday and on Nov. 13, climbing six basis points over the period. It was the biggest two-day increase since May.
Treasuries have handed investors a 2.5 percent loss this year as the economy showed signs of reviving, indexes compiled by Bank of America’s Merrill Lynch unit show.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net. Anna Rascouet in London arascouet@bloomberg.net
