Treasury Yields Are 20 Basis Points From Low Before CPI

Treasury 10-year notes were little changed before a report economists said will show the cost of living in the U.S. increased at the slowest pace in three months during October.

Thirty-year bond yields were within four basis points of the lowest in more than two months before data forecast to show the euro-area economy contracted in the third quarter. The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to the least in two months.

“Yields will go down to new lows,” said Hideo Shimomura, who helps oversee the equivalent of $74.8 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., part of Japan’s largest publicly-traded bank. “The economy is recovering, but it’s only moderate growth.”

U.S. 10-year notes yielded 1.60 percent as of 8:54 a.m. in London, Bloomberg Bond Trader data show. The rate dropped to 1.57 percent on Nov. 13, the least since Sept. 5. The 1.625 percent security due in November 2022 traded at 100 7/32.

The rate on the 30-year bond was at 2.74 percent, after falling to 2.70 percent on Nov. 13, the lowest since Sept. 6.

Ten-year yields will drop to 1.1 percent in the first quarter of next year, Shimomura said. A Bloomberg survey of banks and securities companies projects the yield will climb to 1.74 percent by Dec. 31 and to 1.86 percent by March 31, with the most recent projections given the heaviest weightings.

Fed Buying

Federal Reserve Bank of San Francisco President John Williams said yesterday the U.S. central bank will probably buy about $85 billion in bonds per month starting in early 2013 and continue purchasing securities well into the second half of the year to support the economy.

Shinzo Abe, leader of Japan’s opposition Liberal Democratic Party, said today the nation’s central bank should adopt unlimited easing. Polls indicate the ruling Democratic Party of Japan may lose a parliamentary election set for next month.

The U.S. consumer price index rose 0.1 percent in October from the month before, based on the median estimate of economists surveyed by Bloomberg News before the Labor Department report at 8:30 a.m. New York time. The pace of growth would mark a slowing after 0.6 percent gains in August and September.

U.S. Inflation

Prices advanced 2.1 percent in October from the year before, the Bloomberg survey showed. Inflation, as measured by this gauge, has averaged 2.5 percent over the past decade, after rising to as high as 14.8 percent in 1980.

Other reports today may show initial jobless claims climbed in the wake of superstorm Sandy in the Northeast, while regional manufacturing decelerated.

Minutes of the Fed’s last meeting released yesterday showed policy makers think the central bank may need to boost bond purchases next year to support the economic recovery. Chairman Ben S. Bernanke is scheduled to speak today.

The 10-year break-even rate narrowed by three basis points to 2.36 percentage point, after being as low as 2.35 percentage points, the least since Sept. 11. The rate has dropped from a 2012 high of 2.73 percentage points on Sept. 17 as investors pared back expectations that record-low interest rates and asset purchases will boost consumer-price increases.

Inflation Expectations

The Fed’s preferred measure of inflation expectations, the five-year, five-year forward break-even rate, fell to 2.76 percent as of Nov. 9, the most recent reading available in data compiled by Bloomberg. It was the lowest level in three weeks.

In the minutes, some Fed officials said the central bank may need to expand its monthly purchases of bonds next year after the December expiration of a program known as Operation Twist, which involves selling short-term debt and buying longer maturities.

“A number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity-extension program,” according to the record of the Federal Open Market Committee’s Oct. 23-24 gathering.

The so-called fiscal cliff of tax increases and spending cuts combined with Europe’s debt crisis have increased demand for the relative safety of Treasuries, helping push yields down.

The euro-region’s economy shrank 0.1 percent in the third quarter, after contracting 0.2 percent in the previous three months, according to the median forecast of 44 economists in a Bloomberg News survey.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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