Treasuries Rise Most in Almost Two Weeks on IMF Cuts
Treasuries rose the most in three weeks as stock markets declined after the International Monetary Fund cut its economic forecasts and said there is an “alarmingly high” risk of a steeper slowdown.
The gains pushed 30-year bond yields down from within a basis point of the highest level in more than two weeks as investors sought the securities as a haven. U.S. debt was also buoyed as European Union ministers prepared to meet in Luxembourg amid a lack of clarity about whether Spain will ask for external financial aid. The U.S. plans to sell three-year notes today, the first of three auctions of coupon-bearing Treasuries this week totaling $66 billion.
Benchmark 10-year note yields slid four basis points, or 0.04 percentage point, to 1.69 percent at 10:45 a.m. London time, based on Bloomberg Bond Trader data, after falling as much as six basis points, the most since Sept. 18. The 1.625 percent security due in August 2022 gained 13/32, or $4.06 per $1,000 face amount, to 99 10/32. The 30-year bond yield dropped four basis points to 2.93 percent, after reaching 2.97 percent on Oct. 5, the most since Sept. 21.
“The news flow overnight hasn’t been particularly attractive for risk assets,” said Michael Leister, a fixed- income strategist at Commerzbank AG in London. There’s “this lack of euro-zone leaders to deliver a breakthrough. All these factors are coming together to give Treasuries a bid,” he said.
The world economy will expand 3.3 percent this year, the slowest pace since the 2009 recession, and 3.6 percent next year, the IMF said. That compares with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender sees “alarmingly high” risks of a steeper slowdown, with a one-in-six chance that growth will slip below 2 percent.
The Stoxx Europe 600 Index (SXXP) fell 0.2 percent, extending yesterday’s 1 percent decline. Treasuries were closed yesterday for Columbus Day.
Fort Washington Investment Advisors in Cincinnati, which oversees $42 billion, has been taking money out of the stock market, Nick Sargen, the chief investment officer, said on Bloomberg Television’s “First Up” with Susan Li.
“We’re parking it in bonds that are fairly liquid,” said Sargen, who is a former economist at the Federal Reserve Bank of San Francisco. “What I want is to have that money available to buy stocks back when they’re cheaper.”
The U.S. jobless rate declined to 7.8 percent in September from 8.1 percent the month before, the Labor Department reported Oct. 5. Existing-home sales and retail sales were both stronger in August than analysts expected, industry and government reports showed last month.
The Federal Reserve is scheduled to buy as much as $2.25 billion of Treasuries maturing from February 2036 to August 2042 today as part of its efforts to support the economy, according to Fed Bank of New York’s website.
The U.S. plans to sell $32 billion of three-year debt today, $21 billion of 10-year securities tomorrow and $13 billion of 30-year bonds on Oct. 11. Investors at the last three-year auction on Sept. 11 submitted bids for 3.94 times the amount of debt offered, an all-time high.
The three-year notes scheduled for sale today yielded 0.34 percent in pre-auction trading, compared with 0.337 percent at last month’s sale, a record auction low yield.
The government has attracted a record $3.16 in bids for each dollar of the $1.59 trillion of securities it has sold in 2012, according to data compiled by Bloomberg. That exceeds the previous high of $3.04 set last year.
U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.
Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.
Debt strategists at top-ranked Wall Street firms can’t agree on what investors should do as yields on everything from government to corporate and asset-backed bonds plunge to record lows.
While JPMorgan Chase & Co. forecasts a “year-end storm in the market for U.S. Treasuries,” Barclays Plc advises buying government bonds and cutting investment-grade company debt. Bank of America Corp. recommends high-grade bonds over both junk- rated and U.S. government notes. The three firms are rated the best at fixed-income research by Institutional Investor magazine.
Ten-year Treasury yields will rise to 1.74 percent by Dec. 31 and to 2.05 percent by the end of June, according to a Bloomberg News survey of economists, with the most recent projections given the heaviest weightings.