BLBG: Treasuries Rise as Asian Stocks Fall, China Curbs Its Economy
By Wes Goodman and Paul Dobson
Jan. 27 (Bloomberg) -- Treasuries rose as Asian stocks headed for the longest losing streak in almost five years and China stepped up measures to curb economic growth, boosting demand for the safest securities.
The advance sent the 10-year note yield to near a one-month low after the International Monetary Fund said yesterday the global financial system remains “fragile.” Federal Reserve policy makers will finish a meeting today by keeping the target rate for overnight bank lending near zero to sustain the economic recovery, a Bloomberg survey shows. The U.S. will sell $42 billion of five-year notes today, the second of three auctions this week totaling a record-matching $118 billion.
“Most stories which are coming out are rather disappointing or unnerving and they are weighing on market sentiment and therefore supporting Treasuries,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking. “U.S. auctions are running quite well given this avalanche of material.”
Ten-year note yields slid 2 basis points to 3.61 percent as of 8:16 a.m. in London, according to BGCantor Market Data. The 3.375 percent security due in November 2019 rose 4/32, or $1.25 per $1,000 face amount, to 98 2/32. Yields sank to 3.56 percent yesterday, the lowest level since Dec. 21.
The MSCI Asia Pacific Index of shares fell 1.1 percent, headed for an eighth-straight decline, its longest losing streak since May 2005.
Chinese Banks
Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit and curb the expansion of the world’s fastest-growing major economy.
The government plans to cap new loans this year to avoid inflation and curb asset bubbles. Liu Mingkang, chairman of the China Banking Regulatory Commission, said last week that banks that failed to meet regulatory requirements were told to limit lending.
Banks may need to increase their capital to support the credit recovery and help sustain economic growth, the IMF said.
Japan’s 10-year bonds rose after Moody’s Investors Service and Fitch Ratings said yesterday the government will be able to finance its budget deficit. The same day, Standard & Poor’s cut its outlook for Japan’s AA rating to “negative” from “stable.” The yield dropped 2 basis points to 1.30 percent.
Emerging Markets
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said investors should seek “less levered” countries like China, India and Brazil that are “less easily prone to bubbling.”
“Emerging markets in terms of their deficits, in terms of their reserve creation and their growth rates over the past several years have far surpassed what we came to know as the developed countries,” Gross said yesterday on Bloomberg Television from Newport Beach, California, where Pimco is based.
A U.S. government report today will show new-home purchases rose in December, economists said, supporting forecasts for the Fed to increase borrowing costs later in 2010.
“The Fed will raise rates before the end of the year,” said Shun Totani, senior fund investor for Tokyo-based Asahi Life Asset Management Co., which oversees the equivalent of $1.39 billion in debt. Asahi Life sold Treasuries in the fourth quarter of last year, he said.
Fed Chairman Ben S. Bernanke and the policy setting Federal Open Market Committee will increase the target for overnight bank loans, now in a range of zero to 0.25 percent, to 0.5 percent in the third quarter, according to the Bloomberg surveys. It will be 1 percent by year-end, based on the responses.
GDP Forecast
Gross domestic product expanded at a 4.6 percent pace from October through December, according to a Bloomberg survey before the government reports the figure in two days time. The pace of expansion will slow to 2.7 percent in the first quarter of 2010, another Bloomberg survey shows.
The five-year notes being sold today yielded 2.37 percent in pre-auction trading, declining from 2.665 percent at the prior sale of the securities on Dec. 29.
Investors bid for 2.59 times the amount of debt on offer last month, versus the average of 2.40 for the past 10 auctions. Indirect bidders, a class of investors that includes foreign central banks, purchased 44 percent of the notes, versus the 10- sale average of 46.5 percent.
Five-year Treasuries have returned 1.6 percent in January, lagging behind 10-year notes, which gained 2 percent. Shorter maturities tend to track the Fed’s target for overnight lending, while longer-term securities are more influenced by inflation.
The U.S. sold $44 billion of two-year securities yesterday at the second-lowest cost to the government on record.
The notes drew a yield of 0.88 percent, compared with the forecast of 0.885 percent in a Bloomberg survey of seven of the Fed’s 18 primary dealers, companies required to bid at the sales.
Bids totaled 3.13 times the available securities, compared with the average at the last 10 auctions of 2.99.
This week’s sales conclude with a $32 billion seven-year auction tomorrow.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net Paul Dobson in London at pdobson2@bloomberg.net
