U.S. Notes Drop; Asian Central Banks May Cut Treasury Purchases
Sept. 23 (Bloomberg) -- U.S. Treasuries dropped in London trading for a second day on investor speculation a Group of Seven call for flexible exchange rates may cause Asian central banks to reduce purchases of dollars and U.S. government notes.
``The outlook is for less, rather than more buying of U.S. dollar assets,'' said Ian Douglas, London-based chief bond strategist at UBS AG, Europe's biggest bank. Foreign central banks need dollars to buy Treasuries. The U.S. currency today dropped for a sixth day against the yen.
The 4 1/4 percent Treasury note due in 2013 fell 17/32, or $5.31 per $1,000 face amount, to 99 23/32 at 11:50 a.m. in London, according to Van der Moolen Holding NV prices. Its yield rose 7 basis points to 4.29 percent, after increasing 6 basis points in New York yesterday. The yield on the 2 percent note due August 2005 rose 5 basis points to 1.68 percent. It's the note's fourth day of declines in five.
Finance Ministers from the G-7 most industrialized countries, including Japan, said in a statement at their meeting in Dubai on Saturday that countries' exchange rates should reflect their economies. The Hong Kong Monetary Authority bought $60 million as it sold its own currency, trying to thwart a gain in the city's dollar, a spokesman for the authority said today.
The Bank of Japan said it sold a record 9.03 trillion yen ($80.5 billion) from January to July in an attempt to fuel growth by cheapening exports, using much of the proceeds to buy U.S. government debt.
Japan was the largest holder of U.S. notes and bonds in July, owning $443.8 billion of the $1.39 trillion in U.S. government securities held abroad, the Treasury Department said last week. About $3.5 trillion of Treasury securities are outstanding.
Holdings of Treasuries among central banks outside the U.S. totaled a record daily average of $774.8 billion for the week ended Wednesday, according to Fed statistics.
`Less Incentive'
``There is less incentive for Asian central banks to buy U.S. Treasuries with the G-7 communique,'' said Gordon Wong, who helps oversee $115 million of bonds at Advance Asset Management Ltd. in Sydney. Advance Asset is the fund management arm of St. George Bank Ltd., Australia's fifth-largest lender.
Bond prices will probably fall in the next three months because of an increased supply of the securities and economic reports that will signal accelerating growth, Wong said. Investors should sell government notes, as the 10-year yield may rise about a quarter percentage point to 4.5 percent by the end of October, he said.
Biggest Decline
Ten-year U.S. Treasuries had their biggest decline in two weeks in New York yesterday as demand for debt was tempered by comments from Federal Reserve Governor Ben S. Bernanke. Bernanke, a Fed voter, said he sees a ``definite pickup in growth in the U.S.,'' a more optimistic assessment than he made earlier this month.
Jack Guynn, president of the Federal Reserve Bank of Atlanta and another Fed voter, said the economy is expanding with ``increasingly broad-based momentum,'' in a speech yesterday in Jacksonville, Florida.
``The U.S. economy won't show an anemic recovery; it just takes time for the recovery to gather traction,'' said Desmond Soon, who helps manage about $100 million of fixed-income securities at Pacific Asset Management Ltd. in Singapore, speaking in a televised interview with Bloomberg News.
Central bankers said after their meeting last week they would leave their target for overnight loans between banks on hold at a 45-year low of 1 percent for a ``considerable period'' to ensure a sustainable economic recovery. Accelerating growth has yet to lead to job creation, and a slowing rate of inflation is still a threat to the economy, they said.
Increased Supply
Bernanke and Guynn yesterday ``signaled that the Fed still plans to remain on hold for a long time to come,'' Jan Lambregts, Singapore-based head of Asia Pacific research in the treasury department of Rabobank Groep NV, the third-largest Dutch lender, said in a research report.
Investors are contending with an increased supply of Treasuries as the government increases borrowing to finance the budget deficit. The government will sell $25 billion of new two- year notes tomorrow.
The Congressional Budget Office last month forecast the federal budget deficit will reach a record $480 billion in fiscal 2004, eclipsing this year's gap of about $401 billion. The largest previous deficit was $290 billion in 1992.
Wrightson ICAP LLC, the economic-research unit of ICAP Plc, said it estimates the Treasury will borrow about $78 billion for the quarter, below the Treasury's late-July estimate of $104 billion. Borrowing will rise to $125 billion to $150 billion in the fourth quarter, Wrightson ICAP economists estimated.
Last Updated: September 23, 2003 07:02 EDT |
