Treasuries snapped a gain from yesterday as economists said data today will show U.S. home sales rose in March, indicating there are areas of expansion in the housing market after new construction tumbled.
Fidelity Investments, the Boston-based fund company that oversees $1.61 trillion, has been favoring high-yield debt and other bonds that pay more interest than government securities. The U.S. plans to sell $16 billion of five-year Treasury Inflation Protected Securities today. It is also scheduled to announce the amounts for two-, five- and seven-year auctions scheduled for next week.
“Yields that are less than 2 percent are expensive,” said Youngsung Kim, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor. “There’s some economic data showing the economy is slowing down. I think it’s just temporary. The U.S. economy isn’t bad.”
Benchmark 10-year yields rose one basis point to 1.99 percent at 8:21 a.m. London time, according to Bloomberg Bond Trader prices. The rate dropped to 1.94 percent on April 16, the lowest since March 6. The price of the 2 percent security due February 2022 was 100 3/32.
Sales of previously owned U.S. homes probably climbed 0.7 percent in March from February to a 4.62 million annual rate, according to the median estimate of 72 economists in a Bloomberg News survey. Home starts slowed in March to a five-month low, the Commerce Department said this week.
Claims for first-time jobless benefits fell to 370,000 last week from 380,000 the previous week, a separate survey showed before the Labor Department report today. The number dropped to 361,000 in February, the lowest since April 2008. The Federal Reserve Bank of Philadelphia’s general economic index held near the highest since April 2011, according to another survey.
Fidelity favors high-yield securities, floating-rate loans, real estate bonds and emerging-market debt, according to a report yesterday on the company’s website.
“These assets continued to be well supported by strong economic fundamentals, low default rates, and strong flows from investors seeking higher yields than those offered by U.S. government bonds,” the report said. Fidelity has also “modestly reduced” these holdings following a recent rally.
The note on Fidelity’s website summarizes a discussion among leaders of the investment-management divisions including Christine Thompson, chief investment officer for bonds.
Samsung Asset Management’s Kim said he is avoiding U.S. government debt in favor of South Korean bonds.
Treasuries have returned 1.2 percent this year as of yesterday, while U.S. high-yield bonds have gained 5.2 percent, according to Bank of America Merrill Lynch indexes. TIPS gained 2.5 percent, the data show.
Treasuries have fluctuated between gains and losses each day this week. They rose yesterday as concern about Europe’s debt crisis increased demand for the most secure assets.
Spain and France plan to hold bond auctions today as Spanish Prime Minister Mariano Rajoy’s struggle to meet deficit targets and the French presidential elections drive up yields in the euro area.
“It will be difficult for Treasury rates to go up,” said Hajime Nagata, an investor in Tokyo at Diam Co., which manages the equivalent of $121.8 billion and is an arm of Dai-ichi Life Insurance Co., Japan’s second-biggest life insurer. “The biggest concern is the Spanish auction. The market is also worried about contagion risk.”
Nagata said he’d like to buy if the 10-year yield rises to 2.1 percent.
U.S. employment growth slowed to 120,000 in March from 240,000 in February, fueling a debate over whether economic growth is faltering.
Brazil’s central bank cut its benchmark interest rate yesterday and noted the “fragility of the global economy” in its statement.
Concerns about a slowdown are “overdone,” according to UBS AG, one of the 21 primary dealers that trade directly with the Federal Reserve.
U.S. 10-year yields will rise to 2.7 percent by Dec. 31, Andrew Cates in Singapore and Larry Hatheway and Sophie Constable in London, economists for UBS, wrote in a report today.
Fed Bond Buying
The U.S. central bank plans to buy as much as $2 billion of Treasuries due from August 2022 to February 2031 today as part of a plan to replace $400 billion of shorter-term debt in its holdings with longer maturities to keep borrowing costs down, according to the New York Fed’s website.
Five-year TIPS yielded negative 1.30 percent, versus negative 0.877 percent at the previous sale of the securities on Dec. 15.
Investors bid for 3.01 times the amount offered four months ago, compared with an average of 2.63 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 48.8 percent, the most since October 2006.
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, has widened to 2.26 percentage points from 1.95 percentage points at the end of 2011.
The U.S. auction plan will probably consist of $35 billion of two-year securities on April 24, the same amount of five-year debt on the following day and $29 billion of seven-year notes on April 26, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
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