Treasuries Snap Two-Day Advance on Speculation Economic Growth Quickened
Treasuries snapped a rally that pushed five-year yields to a record low before a government report economists said will show U.S. gross domestic product growth quickened in the fourth quarter of last year.
Five-year inflation swaps, which allow investors to exchange fixed interest rates for returns equivalent to the consumer price index, rose to 2.26 percent yesterday, the most since August. The increase followed the Federal Reserve’s announcement that it’s considering taking additional measures to spur the U.S. economy.
“We’re going to get better numbers” in today’s report, said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “With the Fed easing, it’s good for the economy. Investors may favor corporate bonds and other credit products over the safety of government bonds.”
Benchmark 10-year rates increased one basis point to 1.95 percent as of 10:07 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 fell 1/8, or $1.25 per $1,000 face amount, to 100 15/32.
Five-year notes yielded 0.78 percent, versus the record low of 0.75 percent set yesterday.
GDP grew at a 3 percent annual pace in the fourth quarter, after advancing 1.8 percent in the previous three months, according to the median forecast of 79 economists surveyed by Bloomberg News.
Auction Demand
Treasuries rallied for a second day yesterday as the Fed’s pledge to keep borrowing rates low through at least late 2014 and consider additional asset purchases pushed yields to the least on record at a government auction of seven-year notes.
The securities drew a yield of 1.359 percent, compared with the previous record low auction rate of 1.415 percent in November. Yields slid after Fed Chairman Ben S. Bernanke unexpectedly said the day before that bond buying is “an option that’s certainly on the table.”
“Bernanke gave people a free pass to buy the belly of the curve,” Dan Mulholland, a Treasury trader in New York at RBC Capital Markets LLC, one of 21 primary dealers required to bid at government-debt auctions, said referring Treasuries maturing in the medium term. The “Fed announcement caught the market off guard.”
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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