U.S. securities extended their biggest weekly gain in almost three months after Rick Rieder, chief investment officer of fundamental fixed-income at BlackRock Inc. (BLK), said the Fed will be “aggressive” and there’s a 50 percent chance it will act next month. A stimulus plan is “almost a done deal,” said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. Treasuries also gained before German and Greek leaders meet today to discuss Greece’s debt crisis.
“Treasuries have done well because investors see it as near certainty that the Fed will take further policy action soon,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “Yields are likely to stay low at least in coming weeks.”
The benchmark 10-year yield dropped two basis points, or 0.02 percentage point, to 1.66 percent at 6:45 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 rose 7/32, or $2.19 per $1,000 face amount, to 99 22/32. The yield declined 16 basis points this week, the most since the period ended June 1.
Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their July 31-Aug. 1 meeting released on Aug. 22. The central bank has purchased $2.3 trillion of Treasury and mortgage-related debt since 2008 to cap borrowing costs.
“Are they going to keep being aggressive?” Rieder said yesterday on Bloomberg Television’s “In the Loop” with Deirdre Bolton. “I think so. Rates are staying low for a long time.” The central bank will probably implement a new set of bond purchases and extend its low-rate pledge beyond 2014, and it may announce the measures this year or next, according to BlackRock, which is based in New York, and oversees $3.56 trillion, making it the world’s largest money manager.
Gross, who manages the $270 billion Pimco Total Return Fund (PTTRX) in Newport Beach, California, said in the interview with CNBC yesterday that investors should buy what the central bank will purchase and affect, including mortgage securities.
The Fed is swapping shorter-term Treasuries in the bank’s holdings with those due in six to 30 years to put downward pressure on long-term interest rates. The central bank is scheduled to sell as much as $8 billion of Treasuries due from May 2015 to November 2015 today as part of the plan, according to the Fed Bank of New York’s website.
U.S. employers hired 163,000 workers in July, the Labor Department said on Aug. 3, more than the 100,000 projected by economists surveyed by Bloomberg News. The jobless rate climbed to 8.3 percent from 8.2 percent, the report showed.
Orders (DGNOCHNG) for durable goods rose 2.5 percent in July from June, the most this year, based on a Bloomberg News survey of economists before today’s Commerce Department report.
Treasuries are headed for a monthly loss, reflecting waning demand for safety following the payroll report and European efforts to curb the region’s debt crisis. European Central Bank President Mario Draghi said on Aug. 2 the bank may buy bonds in the region to bring down borrowing costs. The ECB holds its next meeting on Sept. 6.
U.S. government securities have handed investors a 0.7 percent loss this month, versus a 0.2 percent decline for an index of sovereign bonds around the world, according to Bank of America Merrill Lynch data. Treasury Inflation Protected Securities dropped 0.8 percent, the data show.
The difference between yields on 10-year notes and similar-maturity TIPS, a gauge of expectations for consumer prices over the life of the debt, widened to 2.32 percentage points from 2.10 percentage points a month ago. The average over the past decade is 2.16 percentage points.
Chancellor Angela Merkel said yesterday that Germany and France will keep pressure on Greece to overhaul its economy when she meets today with Prime Minister Antonis Samaras, who is seeking more time to fix his debt-ravaged country.
“We, and I, will encourage Greece to pursue the path of reform that demands a lot from the people,” Merkel said late yesterday before hosting French President Francois Hollande for a working dinner in Berlin to coordinate positions on Greece. Merkel receives Samaras at the Chancellery today.
Republican presidential candidate Mitt Romney said yesterday he wouldn’t appoint Fed Chairman Ben S. Bernanke to a third term and said he hasn’t considered a “single person” to replace the Fed chief whose second term ends in January 2014.
Romney has said Bernanke doesn’t deserve a third term. The Fed chief hasn’t said he wants one.
“As a European investor in U.S. Treasuries, I think what Romney said was so unnecessary,” said Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA in Milan, which oversees $6.5 billion in assets. “The timing is just wrong. This will undermine his authority when he still has a lot of key decisions to make.”