Treasury 30-Year Bonds Fall Before Retail Sales, Debt Auction
Treasury 30-year bonds fell for the
first time in three days before a government report that
economists said will show US retail sales rose in December,
helping spur the economy going into 2012.
Bonds also declined as the US prepared to sell $13
billion of the securities today. Demand climbed to records at
sales of three-and 10-year notes this week, driven by safety
demand caused by Europe’s debt crisis. Federal Reserve policy
makers are split on whether they need to increase their debt
purchases to support the economy, with Philadelphia Fed
President Charles Plosser saying yesterday they should watch for
the risk of accelerating inflation.
Retail sales “may beat consensus, so the broad picture is
US data seems to be continuing to surprise positively, even
from low levels,” which may put pressure on Treasuries, said
Marius Daheim, a senior fixed-income strategist at Bayerische
Landesbank in Munich. “The safe-haven bid will remain in place.
Investors are still in a very risk-averse mode and this is
reflected in the demand that you see at auctions.”
The 30-year yield rose two basis points, or 0.02 percentage
point, to 2.98 percent at 8:41 am in London, according to
Bloomberg Bond Trader prices. The 3.125 percent security
maturing in November 2041 fell 15/32, or $4.69 per $1,000 face
amount to 102 22/32. The rate slid six basis points yesterday.
Treasuries have fallen 0.1 percent in January, after
rallying 9.8 percent in 2011 for their best performance in three
years, according to Bank of America Merrill Lynch data.
Retail Sales
Sales (RSTAMOM) at US retailers rose 0.3 percent last month,
following a 0.2 percent gain in November, according to the
median forecast in a Bloomberg News survey of economists before
the Commerce Department report today. First-time jobless claims
were little changed last week, a separate report will show,
based on survey responses.
“The economy is improving,” said Kei Katayama, the leader
of the foreign fixed-income group at Daiwa SB Investments Ltd.
in Tokyo, which has the equivalent of $64.5 billion in assets
and is a unit of Japan’s second-biggest brokerage. “It’s slow,
but relatively solid. That will push yields higher.”
Daiwa SB is holding a smaller percentage of the securities
than the benchmarks it uses to gauge performance, Katayama said.
Debt Crisis
Ten-year Treasury yields fell more than 140 basis points
last year as Europe’s debt crisis intensified. They reached a
record low of 1.67 percent on Sept. 23. Italy and Spain will
seek to sell as much as 17 billion euros ($21.6 billion) of debt
today, testing demand for euro-region assets.
The European Central Bank will probably keep its benchmark
interest rate at 1 percent today after cutting it twice in the
past two months and flooding the banking system with a record
amount of cash.
The Fed is replacing $400 billion of shorter-maturity
Treasuries in its holdings with longer-term debt to cap
borrowing costs under a plan announced in September aimed at
boosting lending. The central bank is scheduled to sell as much
as $8.75 billion of notes due from October 2012 to April 2013
today, according to the New York Fed’s website.
“With the very accommodative stance of monetary policy,
the inflation situation is one that bears careful watching in
order to ensure that inflation pressures remain contained over
the medium run,” the Fed’s Plosser said yesterday in a speech
in Rochester, New York.
Inflation Outlook
The difference between yields on 10-year notes and Treasury
Inflation Protected Securities, a gauge of trader expectations
for consumer prices over the life of the debt, was 2.01
percentage points. The average over the past decade is 2.13
percentage points, according to data compiled by Bloomberg.
Chicago Fed President Charles Evans said yesterday in Lake
Forest, Illinois, that policy makers should pursue
“substantial” easing.
The 30-year securities scheduled for sale today yielded
2.99 percent in pre-auction trading, compared with the all-time
low of 2.93 percent at the Dec. 14 auction. Investors bid for
3.05 times the amount of debt offered last month, the highest
level since August 2000.
A 10-year sale yesterday drew a least-ever yield of 1.90
percent. A three-year auction on Jan. 10 drew bids for a record
3.73 times the amount offered.
Bill Gross, who runs the world’s biggest bond fund at
Pacific Investment Management Co., increased holdings of US
government debt to the highest in 13 months on concern that
risks to the global economy are rising.
Gross boosted the proportion of US government and
Treasury debt in the $244 billion Total Return Fund (PTTRX) to 30
percent of assets in December, the highest since November 2010,
according to a report the Newport Beach, California, company put
on its website yesterday.
Yields are poised to rise this year as the economy grows,
Bloomberg surveys of economists show. The 10-year yield will
advance to 2.60 percent by Dec. 31, according to the responses,
with the most recent forecasts given the heaviest weightings.
To contact the reporters on this story:
Emma Charlton in London at
echarlton1@bloomberg.net;
Wes Goodman in Singapore at
wgoodman@bloomberg.net
To contact the editor responsible for this story:
Daniel Tilles at
dtilles@bloomberg.net
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