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Treasuries Fall as Asian Stocks Gain, Curbing Investors' Demand for Safety
Treasury 30-year bonds fell for a second day as Asian stocks gained and economists said a government report will show personal spending, which accounts for 70 percent of the U.S. economy, increased last month.
Ten-year yields were near the highest level in a week as traders trimmed bets for the Federal Reserve to bolster its government bond purchases, the so-called quantitative easing policy makers are using to spur the economy. The Fed is scheduled to buy Treasury Inflation Protected Securities today as part of the plan to keep borrowing costs low.
“Yields will be higher by year-end,” said Peter Jolly, the Sydney-based head of market research for the investment- banking unit of National Australia Bank Ltd., the nation’s largest lender. “The recovery continues, albeit it’s weak, and they may not need to do more quantitative easing.”
The 30-year bond yield rose two basis points to 3.71 percent as of 11:28 a.m. in Tokyo, according to data compiled by Bloomberg. The 3.875 percent security due August 2040 declined 9/32, or $2.81 per $1,000 face amount to 103 1/32.
Ten-year yields, a benchmark for consumer and company borrowing costs, were little changed at 2.64 percent. They will rise to 3.03 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Jolly predicts 3 percent by Dec. 31.
Shares Climb
MSCI’s Asia Pacific Index of shares advanced 1.5 percent, climbing for a third day and curbing demand for the relative safety of government securities.
Household purchases increased 0.3 percent in July from June, economists forecast before the Commerce Department issues the report today. Incomes also increased 0.3 percent, according to a separate Bloomberg survey. Income and purchases were both unchanged in June.
Trading is scheduled to close at 3 p.m. Tokyo time and stay shut in the U.K. for the Summer Bank Holiday, according to the Securities Industry and Financial Markets Association. U.S. trading is scheduled to take place as usual, according to the association’s website.
Fed Chairman Ben S. Bernanke said last week at a conference in Wyoming that the central bank will provide additional economic stimulus as needed, raising speculation he isn’t ready to increase Treasury purchases.
The Fed’s purchases today will focus on TIPS maturing from January 2011 to February 2040, according to its website.
Growth Slowing
Treasuries still headed for a monthly gain as economists said U.S. gross domestic product growth will be less than they thought earlier.
Morgan Stanley revised its forecast for second-half growth in the U.S. economy to between 2 and 2.5 percent, from an earlier estimate of 3 to 3.5 percent.
U.S. gross domestic product is expanding at a slower pace amid weaker global growth, domestic policy uncertainty and a lessening of economic stimulus, the investment bank said in an e-mailed note to clients.
Economic reports this week will show hiring and manufacturing cooled in August, Bloomberg surveys show.
Treasuries have returned 1.2 percent in August, which would be a fifth monthly gain, according to Bank of America Merrill Lynch indexes. That would be the longest winning streak since the period ended March 2008 as rising credit-market losses set the economy on course for a recession.
An index of sovereign bonds around the world gained 1.4 percent this month, according to Bank of America.
Today’s Commerce Department report will also show the Fed’s preferred price measure gained 1.4 percent in July from a year earlier, economists said, the same pace as the previous month. The figure, the year-on-year personal consumption expenditures price index minus food and energy, has averaged 2 percent for the past decade.
Interest Costs Fall
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of trader expectations for consumer prices, narrowed to 1.63 percentage points from this year’s high of 2.49 percentage points in January.
The bond market is giving President Barack Obama the green light to spend more money to boost the economy. While the government increased the amount of marketable Treasuries 70 percent to $8.18 trillion the past two years, rising demand has driven yields so low that interest to service the debt has fallen 17 percent so far in fiscal 2010 ending Sept. 30 from all of 2008.
“The deficit concerns are on the back burner,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division. “The bigger concerns are on the deflationary mode and seeing growth slowing in the second half of the year.”
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
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