Bloomberg News

Treasuries Head for Quarterly Gain Before Pending Home Sales

September 29, 2011

Sept. 29 (Bloomberg) -- 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.

The government is scheduled to sell $29 billion of seven- year debt today, after a five-year sale yesterday drew a record- low yield, reflecting demand for the relative safety of debt as the economy slows and Greece struggles to avoid a default. The Federal Reserve is next month scheduled to begin a program to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries, a set of measures that has been dubbed Operation Twist by economists.

“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.”

Ten-year rates were little changed at 1.99 percent as of 1:50 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2.125 percent security maturing in August 2021 changed hands at 101 5/32. The yield slid to 1.6714 percent on Sept. 23, the least ever based on Fed data.

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

Japan’s 10-year yield was unchanged at 1 percent. The government debt market has returned 1.2 percent this quarter and 1.7 percent in 2011, Merrill Lynch data show.

Pending Home Sales

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, 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.

U.S. and German 10-year yields are about the same, a sign to Yoshiyuki Suzuki at Fukoku Mutual Life Insurance Co. that Treasuries don’t offer value.

Different Situation

Germany’s rates should be low as investors seek bonds in Europe’s largest economy as a haven from the region’s debt crisis, he said.

“The situation is very different in the U.S.,” said Suzuki, who helps oversee the equivalent of $71.9 billion as the Tokyo-based head of fixed income. “There is no crisis.”

German lawmakers are scheduled to vote today on a plan to expand the euro-area rescue fund, allowing it to buy bonds of distressed states and offer emergency loans to governments.

Ten-year German bunds yield 2.01 percent, or two basis points more than similar-maturity Treasuries. As recently as July, the German rate was 33 basis points less than the U.S. yield.

U.S. 10-year rates will rise to 2.5 percent by year-end, Suzuki said. A Bloomberg survey of banks and securities companies projects the figure will be 2.24 percent, with the most recent forecasts given the heaviest weightings.

The U.S. seven-year notes being sold today yielded 1.49 percent in pre-auction trading, versus 1.58 percent at the previous sale of the securities on Aug. 25, which was 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: Benjamin Purvis, Naoto Hosoda

To contact the reporter on this story: Wes Goodman in Singapore at

To contact the editor responsible for this story: Rocky Swift at

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