Treasuries Set to Beat Corporate Bonds in November
Treasuries halted a four-day gain on speculation U.S. lawmakers will reach a deal to avert the so- called fiscal cliff of tax increases and spending cuts, undermining demand for the safest assets.
Ten-year notes trimmed a weekly advance before an industry report that analysts said will show U.S. business activity expanded in November, adding to signs the economy is recovering. U.S. government bonds were poised to beat corporate debt this month for the first time since May. The U.S. Treasury Master returned 0.5 percent this month through yesterday, while an index of investment-grade and high-yield debt was little changed, according to Bank of America Merrill Lynch data.
“Behind the scenes we think there is some slow progress on the fiscal cliff,” said Vincent Chaigneau, global head of interest-rate strategy at Societe Generale SA in Paris. “Risk sentiment is going to be quite positive going into the end of the year and bond prices will pull back. Worries that the discussions are not progressing quickly enough has supported prices over the past few days.”
The U.S. 10-year yield rose less than one basis point, or 0.01 percentage point, to 1.62 percent at 6:24 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note maturing in November 2022 dropped 1/32, or 31 cents per $1,000 face amount, to 100 2/32.
More than $600 billion of tax increases and automatic spending cuts are scheduled to start in January if no deal on the fiscal cliff is reached. The Congressional Budget Office has said failure to reach an accord may push the world’s largest economy into a recession.
Treasury Secretary Timothy F. Geithner shuttled among congressional leaders yesterday with a plan to trade $1.6 trillion in tax increases for $400 billion in unspecified entitlement program cuts, Republican congressional aides said.
A gauge of business activity from the Institute for Supply Management-Chicago Inc. rose to 50.5 this month from 49.9 in October, according to a Bloomberg survey before the report at 9:45 a.m. New York time. Fifty is the dividing line between expansion and contraction.
U.S. household purchases were unchanged in October, after increasing 0.8 percent in September, a separate Bloomberg survey showed before a Commerce Department report today.
The 10-year Treasury yield fell as low as 1.60 percent this week, the lowest since Nov. 19. It declined to a record 1.379 percent on July 25.
“We have such a low yield on bonds,” Guy Spier, chief executive officer of Aquamarine Capital Management LLC in Zurich, said on Bloomberg Television’s “The Pulse” with Maryam Nemazee. “I really don’t understand why anybody who didn’t have a gun to their head saying ‘buy bonds’ would buy them.”
The Federal Reserve is selling shorter-term Treasuries from its holdings and buying those due in six to 30 years as it seeks to spur the economy by capping borrowing costs, under a program scheduled to end in December.
The central bank plans to purchase as much as $2.25 billion of Treasuries maturing from February 2036 to November 2042 today, according to the Fed Bank of New York’s website.