Treasuries Cheap Versus Peers in Blankfein’s ‘Brightest Spot’
Treasuries are the cheapest versus their international counterparts in more than three years on speculation the Federal Reserve will curb its bond-buying program in the months ahead.
U.S. government securities due in 10 years or more yield 1.06 percentage points more than non-U.S. sovereign debt, the most since 2010, Bank of America Merrill Lynch indexes show. As recently as September 2012, Treasuries yielded less than the rest of the world on average. Lloyd Blankfein, the chief executive of Goldman Sachs Group Inc., said the U.S. is the “brightest spot” in the global economy.
“Treasuries are going to be on data watch,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “With the European Central Bank looking more dovish and the Fed more hawkish, or at least less dovish, you are looking for Treasuries to underperform.”
Benchmark 10-year yields were little changed at 2.64 percent as of 6:44 a.m. New York time, based on Bloomberg Bond Trader data. The price of the 2.5 percent note due August 2023 was 98 26/32. The yield is still less than the average of 3.51 percent over the past decade.
German 10-year yields were at 1.74 percent. Treasuries yielded 90 basis points more than their German counterparts, compared with an average of 60 basis points in the past 12 months.
The ECB will keep its main interest rate unchanged at a record-low 0.5 percent at a meeting today, based on Bloomberg News survey of economists.
Treasuries have fallen 2.2 percent this year through yesterday, while German bonds dropped 1.3 percent and Japanese bonds gained 2.5 percent, according to the Bloomberg World Bond Indexes.
U.S. 10-year notes rose yesterday on speculation the Fed will keep its target interest rate at almost zero for an extended period when it starts stimulus cuts.
The central bank is buying $45 billion of Treasury debt and $40 billion of mortgage securities a month to support the economy by putting downward pressure on borrowing costs.
Policy makers will begin tapering the program in March, according to the median estimate of economists in a Bloomberg News survey conducted Oct. 17-18.
Gross domestic product grew at an annualized 2 percent rate in the third quarter after expanding 2.5 percent in the previous three months, according to the median forecast of economists surveyed by Bloomberg before Commerce Department figures today. A separate report today will show initial claims for jobless insurance fell to 335,000, based on responses from economists.
The U.S. added 120,000 jobs in October, the Bloomberg surveys indicate before the Labor Department reports the figure tomorrow. Employment increased 148,000 in September and 193,000 in August.
“The brightest spot, I think, is the U.S., where everybody is very focused on the shallowness of the recovery, but the recovery has been established,” Blankfein said earlier this week at a conference in Washington. “Globally, I think we’re going to muddle through. Lower growth than we want. But largely conditions are favorable.”
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