Bloomberg News

Treasuries Snap Two-Day Drop on Concern Global Economy to Slow

November 09, 2011

Nov. 9 (Bloomberg) -- Treasuries snapped a two-day drop as government data sapped confidence in the global economy that International Monetary Fund Managing Director Christine Lagarde said is at risk of a “lost decade.”

Benchmark 10-year yields declined after a Chinese report showed inflation slowed in the world’s second-biggest economy. U.S. data today may indicate more Americans filed for unemployment benefits last week. A $32 billion auction of three- year Treasury notes yesterday attracted the highest demand since at least 1993 before a sale of $24 billion of 10-year debt today.

“The global economic situation is likely to help keep Treasury yields low,” said Masazumi Fukuoka, chief dealer at the Singapore branch of Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest listed lender. “China is slowing down.”

The yield on the 10-year note dipped one basis point to 2.07 percent at 6:57 a.m. London time, according to Bloomberg Bond Trader prices. The yield increased four basis points yesterday. The 2.125 percent securities maturing in August 2021 added 3/32, or $0.94 per $1,000 face value, to 100 16/32.

Advanced economies have a “special responsibility” to restore confidence and lift growth, while China should boost consumption and allow its currency to rise, the IMF leader said.

“If we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability, and a collapse in global demand,” Lagarde said at a forum in Beijing today. “Ultimately, we could face a lost decade of low growth and high unemployment.”

China’s Economy

China’s statistics bureau said today producer prices rose 5 percent in October from a year earlier, less than any of 24 analyst forecasts in a Bloomberg News survey. Consumer prices gained 5.5 percent, in line with the median projection in a separate Bloomberg poll. The 0.6 percentage point decline from September’s rate was the biggest since February 2009.

Industrial output growth slowed to 13.2 percent last month from 13.8 percent in September.

Japan’s 10-year yields were little changed at 0.98 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. They reached 0.965 percent on Sept. 22, the least since Nov. 9, 2010.

Exit Berlusconi

U.S. bonds slumped and stocks advanced yesterday after Italy’s Prime Minister Silvio Berlusconi offered to quit, stoking speculation the country will appoint a new leader who can curb its debt.

Berlusconi’s coalition has been unraveling since contagion from the euro region’s debt crisis led the country’s bond yields to surge, prompting Italy’s European Union allies and the European Central Bank to demand more austerity measures to balance the budget and try to spur growth.

U.S. government bonds have returned investors 8.5 percent in 2011, poised for the biggest annual gain since 2008, according to an index compiled by Bank of America Merrill Lynch.

“Treasuries are being bought in a flight to quality amid increased uncertainty caused by the prolonged debt problem in Europe,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest listed bank by market value..

Demand for Treasuries was limited as Asian stocks advanced, reducing the allure of U.S. government debt as a refuge.

The MSCI Asia Pacific Index of shares climbed 1.3 percent after the Standard & Poor’s 500 Index rose 1.2 percent in New York yesterday.

--Editors: Jonathan Annells, Naoto Hosoda

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.

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


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