Treasuries No Longer a Buy, Nomura’s George Goncalves Says: Tom Keene

Nomura Securities has pulled its recommendation to buy Treasuries after a volatile week in the financial markets, said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc.

“We’ve moved toward a neutral stance on bonds,” Goncalves said during a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “You don’t necessarily have to sell them, we’re not there yet where you’re worry about inflation, but most of the gains are here. The movement and the volatility and the speed at which rates declined, you don’t get that sometimes in a year’s time frame.”

Volatility in Treasuries has picked up. Bank of America Merrill Lynch’s MOVE index, which measure price swings in Treasuries, touched 107.9 basis points yesterday compared with the 89.4 average since the start of the year.

Yields on benchmark 10-year notes fell seven basis points to 2.27 percent in New York today. Two- and 10-year yields reached record lows this week. The spread between two- and 10- year securities has narrowed to 207 basis points after reaching a high this year of 289. A basis point is 0.01 percentage point.

The flattening of the yield curve signals gross domestic product expansion of less than 2 percent as the market readjusts its expectations for growth and inflation, according to New York-based Goncalves.

Fed Policy

The Federal Reserve pledged after its Aug. 9 policy meeting to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s“considerably slower” than anticipated.

“Look to Japan,” Goncalves, 35, said. “I’m not saying that we’re going to become an exact replica of Japan, but Japanese 10-year rates got down to 50 basis points when things got really ugly over there, so 2.28 percent, relative to 50 basis points, it’s a big difference.”

Policy makers in the U.S. and Europe are going to find that large amounts of debt combined with an urge to deleverage are mutually exclusive and will make a global recovery more difficult, Goncalves said.

“You can’t shrink your way to growth,” he said. “The Federal Reserve came back from the future and literally cut rates in 2013. When you have policy makers resorting to time travel, you know that things are kind of tough.”

To contact the reporters for this story: Joe Ragazzo in New York at; Tom Keene in New York at

To contact the editor responsible for this story: Robert Burgess at

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