Treasuries advanced, rebounding from
yesterday’s drop, before a U.S. report that economists said will
show jobless claims held near a nine-month high.
The so-called five-year, five-year forward breakeven rate,
a measure that the Federal Reserve uses to measure price
expectations, fell to its lowest level in 2010 this week.
Nouriel Roubini, the New York University economist who predicted
the global financial crisis, said U.S. growth will be “well
below” 1 percent in the third quarter and put the odds of a
renewed recession at 40 percent. The Treasury Department plans
to sell $29 billion of seven-year notes today.
“The bond market is reflecting the nature of the risk in
the economy,” said Harvinder Sian, a senior fixed-income
strategist at Royal Bank of Scotland Group Plc in London. “It’s
perhaps too early to talk about a double-dip scenario, but data
seems to be pointing toward that direction. The trend remains
favourable for fixed-income assets.”
The yield on the 10-year note fell three basis points to
2.51 percent at 6:50 a.m. in New York, according to BGCantor
Market Data. The 2.625 percent security maturing August 2020
rose 9/32, or $2.81 per $1,000 face amount, to 101 1/32. The
yield increased five basis points yesterday.
The Fed is scheduled to buy Treasuries due from February
2021 to August 2040 today as part of its plan to spur the
economy by keeping borrowing costs low. Chairman Ben S. Bernanke
will discuss the outlook for the economy tomorrow at a
conference in Jackson Hole, Wyoming.
Roubini’s Comments
The number of initial unemployment claims fell to 490,000
last week from 500,000 seven days before, according to the
median estimate of economists surveyed by Bloomberg News ahead
of the data today. The prior figure was the most since Nov. 13.
“With growth at a stall speed of 1 percent or below, the
stock markets could sharply correct, and credit spreads and
interbank spreads widen while global risk aversion sharply
increases,” Roubini wrote in an e-mail. “A negative feedback
loop between the real economy and the risky asset prices can
easily then tip the economy into a formal double dip.”
Orders for durable goods advanced 0.3 percent in July after
a revised 0.1 percent drop in the prior month, a Commerce
Department report showed yesterday. The median forecast in a
Bloomberg News survey was for a 3 percent increase. Sales of new
homes dropped 12 percent last month to a record low 276,000
annual rate, the department said.
The five-year, five-year forward breakeven rate, currently
a bet on inflation rates between 2015 and 2020, reached 1.85
percent yesterday, the lowest this year.
The difference between the rates on two-year notes and 30-
year debt narrowed to 3.04 percentage points from this year’s
high of 3.85 percentage set in February.
Share Rebound
A yield curve is a chart that plots the rates on bonds of
the same quality and different maturities. It flattens when
yields on shorter-maturity notes rise, those on longer-dated
bonds fall, or both happen simultaneously. It was at 3.06
percent today.
Demand for bonds was tempered as stocks rose. The MSCI Asia
Pacific Index of shares advanced 0.3 percent, snapping a two-day
loss. Europe’s Stoxx 600 index added 0.9 percent.
“There are emerging signs that the latest round of losses
on the equity market will take a breather,” said Kazumasa Yamaoka, chief strategist at investment advisory company GCI
Research Institute Ltd. in Tokyo. “This will ease extreme risk
aversion and weaken a massive capital flight into safer assets
such as government bonds.”
The seven-year notes being sold today yielded 2 percent in
pre-auction trading, compared with 2.394 percent at the previous
sale of the securities on July 29.
Treasury Auction
Investors bid for 2.78 times the amount on offer last
month, compared with an average of 2.81 for the past 10
auctions. Indirect bidders, the category of investors that
includes foreign central banks, bought 42.3 percent of the
notes, versus the 10-sale average of 50.4 percent.
“If Treasuries were to decline around the auction, that
will create a good opportunity for snapping them up,” said
Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP
Paribas SA. The company is one of the 18 primary dealers that
are required to bid at the government debt sales.
At a five-year note auction yesterday, the securities drew
a record low yield of 1.374 percent, higher than the average
forecast of 1.363 percent in a Bloomberg News survey of six of
the primary dealers.
Investors bid for 2.83 times the amount of securities
offered, versus the average of 2.72 for the previous 10 sales.
To contact the reporters on this story:
Anchalee Worrachate in London at
aworrachate@bloomberg.net;
Yasuhiko Seki in Tokyo at
yseki5@bloomberg.net;
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