Bloomberg News

Treasuries Hold Gain on Outlook for Unemployment Rate

August 21, 2012

Treasuries held a two-day gain on speculation yields at the highest level since May will attract investors while unemployment holds at more than 8 percent.

Ten-year yields matched their 200-day moving average yesterday, reaching a technical level that indicates demand may increase. Treasury Inflation Protected Securities headed for their steepest monthly loss since 2008 as demand for insurance against rising costs in the economy tumbles. While reports this month on jobs and consumption showed gains, the jobless rate has been stuck at more than 8 percent for three years.

“Growth is too weak to lower the unemployment rate,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “The 200- day average is leading investors to buy on dips.”

Ten-year notes yielded 1.79 percent as of 6:47 a.m. in London, according to Bloomberg Bond Trader prices. The price of the 1.625 percent securities due in August 2022 was 98 15/32.

The benchmark rate was as high as 1.86 percent yesterday, matching the most since May 11 as well as the moving average. Some investors and analysts who study charts of trading patterns use the averages to identify levels where orders to buy or sell may be set.

ECB Cap

Yields, which move inversely to bond prices, rose initially yesterday after Germany’s Der Spiegel magazine reported the European Central Bank is considering putting a cap on bond rates to contain the region’s fiscal turmoil.

U.S. yields slid after the ECB said it hasn’t discussed a plan to target yields of euro-bloc members. ECB policy makers next meet Sept. 6.

Japan’s 10-year rate fell three basis points to 0.82 percent today, set for the biggest decline in two weeks. A basis point is 0.01 percentage point.

The U.S. added 163,000 jobs in July, according to Labor Department data Aug. 3, more than the 100,000 projected by analysts surveyed by Bloomberg News. The same report showed the jobless rate climbed to 8.3 percent from 8.2 percent. Retail sales rebounded in July from a decline in June, Commerce Department data Aug. 14 showed.

Reports this week on housing and orders for durable goods will show gains, according to Bloomberg News surveys of economists.

Fed Operation

The Federal Reserve is scheduled to sell as much as $8 billion of Treasuries due from September 2014 to April 2015 today, according to the Fed Bank of New York website.

The sales are part of Chairman Ben S. Bernanke’s effort to swap shorter-term Treasuries in the bank’s holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs.

Efforts by European leaders to find ways for nations in the region to pay their debts have curtailed demand for the safety of U.S. debt, said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo.

“The flight to quality has eased,” he said. Ten-year yields will climb to 1.35 percent by Dec. 31, according to BNP, one of the 21 primary dealers that trade directly with the Fed.

Luxembourg Prime Minister Jean-Claude Juncker, the head of the euro group of finance ministers, is scheduled to visit Greece tomorrow. German Chancellor Angela Merkel and French President Francois Hollande meet in Berlin on Aug. 23.

The Treasury Department is scheduled to sell $14 billion of five-year inflation-protected notes on Aug. 23, just as demand for the securities tumbles.

Comparative Returns

An index of TIPS has handed investors a 2.3 percent loss in August, according to Bank of America Merrill Lynch indexes. The last time the securities fell as much in a month was October 2008 when credit markets froze around the world and the U.S. was in its worst recession since the Great Depression.

Treasuries that don’t offer inflation protection have fallen 1.4 percent in August, heading for the biggest monthly loss since December 2010.

The U.S. is scheduled to announce on Aug. 23. the sizes of 2-, 5- and seven-year notes it plans to auction next week.

It will probably sell $35 billion of two-year debt on Aug. 28, the same amount of five-year notes the following day and $29 billion of seven-year securities on Aug. 30, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey.

Maturing Treasuries available for reinvestment will total $50.4 billion, and the sales will raise $48.6 billion of new cash, according to Wrightson. The government issues the combination of 2-, 5- and 7-year notes every month.

The August slump in bonds is poised to end, based on a Bloomberg survey of economists. Ten-year yields will be little changed at 1.78 at Dec. 31, according to the responses, with the most recent projections given the heaviest weightings.

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus