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Treasuries Decline Amid G-20 Debate to Bolster Growth
By Susanne Walker & Neal Armstrong
Bloomberg
Treasury 10-year notes fell for the first time in three days as officials from the Group of 20 nations conclude talks aimed at boosting global growth, reducing demand for the safest securities.
The benchmark securities trimmed a weekly advance after a China’s State Information Center said Asia’s largest economy may rebound in the second and third quarters. German Finance Minister Wolfgang Schaeuble said there was uniform recognition at a G-20 that Europe has made great progress in stabilizing the euro and that financial markets have a “less uncertain view” of the currency union. Treasuries returned 0.7 percent this year through yesterday versus an 8.1 percent jump by stocks.
“We are at expensive levels,” said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York. “Equities are up, suggesting there may be better sentiment on risk. That may present additional pressure for Treasuries.”
The U.S. 10-year yield climbed two basis points, or 0.02 percentage point, to 1.70 percent at 10:31 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2023 fell 5/32, or $1.56 per $1,000 face value, to 102 21/32. The yield has fallen two basis points this week.
The 10-year yield traded below its 200-day moving average of 1.75 percent for a sixth straight day. Moving averages are indicators of momentum.
The Stoxx Europe 600 Index (SXXP) gained 0.3 percent and the Standard & Poor’s 500 Index advanced 0.4 percent.
Draft Statement
Treasuries are almost at the most expensive level this year, according to the 10-year term premium, a model that includes expectations for interest rates, growth and inflation. The gauge was at negative 0.8 percent today, close to the negative 0.83 percent reached on April 15, the most expensive since Dec. 13. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
“Macro fundamentals still suggest that Treasury yields can be higher,” said Orlando Green, a rates strategist at Credit Agricole Corporate & Investment Bank in London. “The market will move to a more risk-on situation when it feels that negative shocks have diminished.”
Finance ministers and central bank chiefs from the G-20 meeting in Washington will affirm a commitment to avoid weakening their currencies to gain a trade advantage, according to a draft statement prepared for the two-day meeting and seen by a Bloomberg BNA reporter. Officials gathering in the U.S. capital will discuss the draft statement and changes may be made before its release.
‘Buy Time’
“Mr. Bernanke too can only buy time, he can’t solve the problems in substance of the economy,” Schaeuble told reporters at the G-20 meeting, referring to Federal Reserve Chairman Ben S. Bernanke. The U.S. “is aware that they need a credible medium-term strategy.”
The Fed today is scheduled to buy up to $1.75 billion of Treasuries due from February 2036 to February 2043 as part of its plan to put downward pressure on borrowing costs through asset purchases, known as quantitative easing.
Minutes of the Fed’s March meeting released on April 10 showed several members of the Federal Open Market Committee “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end.”
Inflation Outlook
Purchases of existing U.S. homes rose to a 5 million annualized rate in March, the fastest since November 2009, according to the median estimate in a Bloomberg News survey before the National Association of Realtors releases the report on April 22. Commerce Department data the following day will show sales of new houses climbed last month to an annual pace of 419,000 from 411,000 in February, a separate survey showed.
The 10-year break-even rate, a measure of inflation expectations derived from the difference between yields on conventional Treasuries and index-linked securities, was at 2.31 percent after declining to 2.25 percent yesterday, the lowest level since Sept. 4.
Treasuries trimmed gains earlier amid expectations for a rebound in China. China’s recovery is driven mainly by infrastructure spending and inventory adjustments by companies, Zhu Baoliang, head of the State Information Center’s economic forecast department, said at a forum in Beijing. The nation should stabilize money supply growth and loosen fiscal policy to boost economic growth, he said.
The post Treasuries Decline Amid G-20 Debate to Bolster Growth appeared first on Midas Letter.
2013-04-19 08:46:34
Source: http://www.midasletter.com/2013/04/treasuries-decline-amid-g-20-debate-to-bolster-growth-1304192/
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