Treasuries Snap Two-Day Drop on Speculation Housing Starts Fell Last Month

Treasuries snapped a two-day loss before a government report that economists said will show housing starts fell in December as the industry that triggered the recession struggles to recover.

The Federal Reserve plans to purchase $6 billion to $8 billion of notes due from July 2013 to December 2014 today as part of its plan to spur the economy. Housing starts dropped 0.9 percent to a 550,000 annual rate, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department report.

“I recommend buying U.S. bonds,” said Hiroki Shimazu, an economist in Tokyo at Nikko Cordial Securities Inc., which is part of Sumitomo Mitsui Financial Group Inc., Japan’s third- largest publicly traded bank by assets. “Housing is one of the weakest markets in the U.S. People are overly optimistic on the U.S. economy.”

The 10-year note yielded 3.38 percent as of 9:55 a.m. in Tokyo, according to data compiled by Bloomberg. The 2.625 percent security maturing in November 2020 traded at 93 3/4.

The difference in yield between two- and 30-year Treasuries widened to a record yesterday as investors demanded higher compensation for longer-term debt on speculation inflation will accelerate.

The spread reached 4.01 percentage points, the steepest slope to the so-called yield curve since Bloomberg records on the data began in 1977.

“The two-year remains anchored to the Fed’s zero-interest rate-policy,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The long end will continue to underperform.”

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