Treasuries fell on speculation yields near record lows will erode demand as the U.S. prepared to announce how much it plans to raise in sales of three-, 10- and 30-year debt next week.
Investors who predict the Federal Reserve will increase Treasury purchases to foster the economic recovery began to question whether the amount will be enough to push rates down. The extent to which bond buying will influence financial conditions is a “major unknown,” said Tony Crescenzi, a strategist at Pacific Investment Management Co., which runs the world’s biggest bond fund.
“The direction will be to the upside” for yields, said Kei Katayama, the leader of the foreign fixed-income group at Daiwa SB Investments Ltd., which oversees the equivalent of $54.9 billion. “I don’t think they’ll be that aggressive.”
Benchmark 10-year note rates rose two basis points to 2.41 percent at 1:28 p.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in August 2020 declined 1/8, or $1.25 per $1,000 face amount, to 101 7/8.
The 10-year yield will advance to 2.56 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
Three-year Treasuries yielded 0.57 percent, after dropping to 0.5407 percent yesterday, the least ever.
Shorter Duration
The duration of Daiwa SB’s Treasury holdings is less than the benchmark it uses to gauge performance, Katayama said. Duration is a measure of a portfolio’s sensitivity to yield changes. A shorter figure indicates a more bearish position.
The U.S. will probably sell $32 billion of three-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds, according to Wrightson ICAP LLC, the economic advisory company in Jersey City, New Jersey, that specializes in U.S. government finance.
The $66 billion total compares with $67 billion the last time the Treasury sold this combination of securities in August.
Australian two-year notes fell the most since February after the government said employers added workers for a seventh month, sending yields up 17 basis points to 4.92 percent. New Zealand three-year yields climbed nine basis points to 3.94 percent.
The Australian dollar rose as far as 98.46 U.S. cents, compared with a record high of 98.50 cents reached in July 2008.
Job Data
Treasuries rallied yesterday as a report showing an unexpected decrease in U.S. jobs fueled speculation the Fed will buy more debt as soon as its next meeting Nov. 2 to Nov. 3, a strategy known as quantitative easing that the Bank of Japan announced this week.
Yields slid this week as investors bet the Fed will follow the Bank of Japan in purchasing more bonds, a strategy known as quantitative easing.
“The combination of bad data and very pointed comments by Fed officials leave one to believe that the Fed will be launching a ‘quantitative-easing rocket’ in the near future and traders don’t want to miss the ride,” Kevin Giddis, president of fixed-income capital markets at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients.
Fed Purchases
The central bank bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March.
Speculation the central bank will pump money into the economy has risen as New York Fed President William Dudley, the Boston Fed’s Eric Rosengren and Chicago’s Charles Evans all advocated further action.
Fed Chairman Ben S. Bernanke said Oct. 4 that restarting large-scale asset purchases would probably spur growth, after saying last week the bank has a duty to aid the economy as unemployment holds near 10 percent.
Central bank purchases don’t automatically send prices higher.
Treasuries handed investors a 3.7 percent loss last year, the first annual decline since 1999, according to Bank of America Merrill Lynch indexes, as the Fed snapped up $300 billion of government securities.
“The efficacy of QE in particular represents a major unknown even for the Fed, as few truly know the effect that a given amount of QE will have on financial conditions,” Pimco’s Crescenzi wrote in a note to clients yesterday in the U.S. “Few truly know the impact that any loosening of financial conditions will have on the economy.”
Corporate debt is an alternative to government securities, Manfred Burger, senior bond analyst at ABN Amro Private Banking, wrote in the company’s outlook for the fourth quarter.
Investors should “underweight” sovereign debt, according to ABN, which oversees $200 billion and is based in Amsterdam.
“With the prospect of interest rates being higher in the months ahead as our main scenario, the potential for extended fixed-income capital gains within this bond category is limited,” Burger wrote.
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Investors who predict the Federal Reserve will increase Treasury purchases to foster the economic recovery began to question whether the amount will be enough to push rates down. The extent to which bond buying will influence financial conditions is a “major unknown,” said Tony Crescenzi, a strategist at Pacific Investment Management Co., which runs the world’s biggest bond fund.
“The direction will be to the upside” for yields, said Kei Katayama, the leader of the foreign fixed-income group at Daiwa SB Investments Ltd., which oversees the equivalent of $54.9 billion. “I don’t think they’ll be that aggressive.”
Benchmark 10-year note rates rose two basis points to 2.41 percent at 1:28 p.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in August 2020 declined 1/8, or $1.25 per $1,000 face amount, to 101 7/8.
The 10-year yield will advance to 2.56 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
Three-year Treasuries yielded 0.57 percent, after dropping to 0.5407 percent yesterday, the least ever.
Shorter Duration
The duration of Daiwa SB’s Treasury holdings is less than the benchmark it uses to gauge performance, Katayama said. Duration is a measure of a portfolio’s sensitivity to yield changes. A shorter figure indicates a more bearish position.
The U.S. will probably sell $32 billion of three-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds, according to Wrightson ICAP LLC, the economic advisory company in Jersey City, New Jersey, that specializes in U.S. government finance.
The $66 billion total compares with $67 billion the last time the Treasury sold this combination of securities in August.
Australian two-year notes fell the most since February after the government said employers added workers for a seventh month, sending yields up 17 basis points to 4.92 percent. New Zealand three-year yields climbed nine basis points to 3.94 percent.
The Australian dollar rose as far as 98.46 U.S. cents, compared with a record high of 98.50 cents reached in July 2008.
Job Data
Treasuries rallied yesterday as a report showing an unexpected decrease in U.S. jobs fueled speculation the Fed will buy more debt as soon as its next meeting Nov. 2 to Nov. 3, a strategy known as quantitative easing that the Bank of Japan announced this week.
Yields slid this week as investors bet the Fed will follow the Bank of Japan in purchasing more bonds, a strategy known as quantitative easing.
“The combination of bad data and very pointed comments by Fed officials leave one to believe that the Fed will be launching a ‘quantitative-easing rocket’ in the near future and traders don’t want to miss the ride,” Kevin Giddis, president of fixed-income capital markets at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients.
Fed Purchases
The central bank bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March.
Speculation the central bank will pump money into the economy has risen as New York Fed President William Dudley, the Boston Fed’s Eric Rosengren and Chicago’s Charles Evans all advocated further action.
Fed Chairman Ben S. Bernanke said Oct. 4 that restarting large-scale asset purchases would probably spur growth, after saying last week the bank has a duty to aid the economy as unemployment holds near 10 percent.
Central bank purchases don’t automatically send prices higher.
Treasuries handed investors a 3.7 percent loss last year, the first annual decline since 1999, according to Bank of America Merrill Lynch indexes, as the Fed snapped up $300 billion of government securities.
“The efficacy of QE in particular represents a major unknown even for the Fed, as few truly know the effect that a given amount of QE will have on financial conditions,” Pimco’s Crescenzi wrote in a note to clients yesterday in the U.S. “Few truly know the impact that any loosening of financial conditions will have on the economy.”
Corporate debt is an alternative to government securities, Manfred Burger, senior bond analyst at ABN Amro Private Banking, wrote in the company’s outlook for the fourth quarter.
Investors should “underweight” sovereign debt, according to ABN, which oversees $200 billion and is based in Amsterdam.
“With the prospect of interest rates being higher in the months ahead as our main scenario, the potential for extended fixed-income capital gains within this bond category is limited,” Burger wrote.
http://jodnet.blogspot.com
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