Bloomberg News

Treasuries Drop as Asia Stocks Rebound, Cut Demand for Safety

September 29, 2011

Sept. 29 (Bloomberg) -- Treasuries fell for a fifth day, the longest losing streak since July, as gains in Asia shares and U.S. stock futures reduced demand for the relative safety of government debt.

The U.S. is scheduled to sell $29 billion of seven-year securities today, the last of three note auctions this week totaling $99 billion. Ford Motor Co. Chief Executive Officer Alan Mulally said he doesn’t expect a double-dip U.S. recession.

“I’m bearish” on U.S. debt, said Yoshiyuki Suzuki who helps oversee the equivalent of $71.9 billion as the Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co. “People will shift money out of Treasuries” in search of higher yields elsewhere, he said.

Ten-year rates rose two basis points to 2 percent as of 7:34 a.m. in London, according to Bloomberg Bond Trader prices. The 2.125 percent security maturing in August 2021 fell 1/8, or $1.25 per $1,000 face amount, to 101 5/32. 4. The yield slid to 1.6714 percent on Sept. 23, the least ever based on Federal Reserve data.

The MSCI Asia Pacific Index of shares rose 0.3 percent, recouping an earlier 1.3 percent loss. Standard & Poor’s 500 Index futures increased 0.7 percent. Mulally said today in Bangkok that Ford plans to add 7,000 jobs over the next two years in the U.S. as it expects the world’s largest economy to avoid another recession.

Treasuries headed for the biggest quarterly gain since 2008 before an industry report on U.S. home sales that economists said will be the latest evidence that America’s economy is struggling.

Twist Begins

The Federal Reserve is scheduled to begin a program next month to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries, a plan that has been dubbed Operation Twist by economists.

Treasuries have returned 5.9 percent this quarter, and they are up 8.3 percent this year, based on Bank of America Merrill Lynch data. Bonds rallied even after Standard & Poor’s cut the U.S. debt rating by one level to AA+ on Aug. 5.

The gains are the biggest since an 8.9 percent surge in the last three months of 2008, boosting returns to almost 14 percent that year, as investors sought a haven during the last recession.

MSCI All Country World Index of stocks has handed investors a 12 percent loss in 2011 after accounting for reinvested dividends.

The Fed announcement on Sept. 21 that it plans to buy long- term Treasuries helped narrow the difference between two- and 30-year yields to 2.83 percentage points from this year’s high of 4.04 percentage points in January.

Housing Data

“Operation Twist will stop yields from rising,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “The economy isn’t expanding. There’s no other place to park money.”

U.S. pending home sales, or contract signings for existing dwellings, decreased 2 percent in August, after falling 1.3 percent the prior month, the National Association of Realtors will report today, according to a Bloomberg News survey of economists.

At yesterday’s auction, the five-year notes drew a yield of 1.015 percent, compared with the previous record of 1.029 percent on Aug. 24. A $35 billion sale of two-year notes on Sept. 27 drew the highest demand in a year.

The U.S. seven-year notes being sold today yielded 1.50 percent in pre-auction trading, versus 1.58 percent at the previous sale of the securities on Aug. 25, a record low.

Investors bid for 2.76 times the amount offered last month, compared with an average of 2.79 for the past 10 auctions. Indirect bidders, the investor class that includes central banks outside the U.S., purchased 51.7 percent of the securities, the most at the monthly sales since January.

--Editors: Rocky Swift, Garfield Reynolds

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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