Treasuries Headed for Four-Week Slide, Longest in 16 Months
bloomberg.com
By Elizabeth Stanton and Agnes Lovasz
Dec. 29 (Bloomberg) -- U.S. Treasury notes fell, heading for their fourth straight weekly decline, amid evidence the economy is rebounding from two quarters of slowing growth.
Ten-year yields have climbed almost a quarter-percentage point this month as traders pared expectations for interest-rate cuts by the Federal Reserve. Stronger-than-expected reports on home sales, consumer confidence and manufacturing the past two days pushed the yield to a seven-week high yesterday.
``The numbers have continued to point to an economy that fits more with the Fed's call'' for moderate growth over the coming quarters ``than the market's pessimistic outlook,'' said Thomas Roth, head of U.S. government bond trading at Dresdner Kleinwort in New York, one of the 22 primary U.S. government securities dealers that trade with the central bank.
The benchmark 10-year note yield rose almost 2 basis points, or 0.02 percentage point, to 4.70 percent at 9:29 a.m. in New York, according to Cantor Fitzgerald LP. The price of the 4 5/8 percent security due in November 2016 fell about 1/4, or $2.50 per $1,000 face amount, to 99 11/32, and is down more than 2 points over the past four weeks.
Ten-year yields haven't climbed for four straight weeks since mid-2005, when the central bank was in the middle of a two-year series of rate increases. Treasuries fell in each of the six weeks ending Aug. 5, 2005.
The financial markets industry association recommends that U.S. bond markets shut at 2 p.m. New York time today. U.S. financial markets are closed Jan. 1, and the markets association advises a 2 p.m. close on Jan. 2 to honor former President Gerald Ford, who died this week.
Slowdown `Overestimated'
The Conference Board yesterday said its index of consumer sentiment rose this month, while the median forecast among economists surveyed by Bloomberg was for a drop. Sales of previously owned homes unexpectedly climbed 0.6 percent in November, the National Association of Realtors said.
``The market has overestimated the slowdown in the U.S. economy and the chances of a Fed rate cut next year,'' said Hiroyuki Yamada, who helps manage $1.19 billion at Daiwa SB Investments Ltd. in Tokyo. ``With the economy still showing signs of strength, we are going to see yields rise from here.''
The 10-year yield may rise to 5 percent in the next three months, Yamada said.
Traders are reducing bets policy makers will lower rates by the end of the first quarter. Futures contracts show they see a 17 percent chance the Fed will cut the benchmark rate by a quarter-percentage point to 5 percent at its March 21 meeting, dropping from 100 percent odds at the beginning of the month.
`Plan to Buy'
Treasury securities through yesterday have returned 3.2 percent this year, according to data compiled by Merrill Lynch & Co. That is better than the 2.8 percent gain last year, and the 3.5 percent return in 2004.
Declines in Treasuries may be tempered as some investors said the drop presents a buying opportunity.
The 10-day relative strength index, a measure of momentum, was 29 for 10-year notes today, according to data compiled by Bloomberg. A level below 30 or above 70 suggests the price may reverse direction.
``We plan to buy some Treasuries in the new year,'' said Masayuki Yoshihara, who helps manage the equivalent of $26 billion in non-Japanese bonds at Sumitomo Life Insurance Co. in Tokyo. ``Inflation is not accelerating and we see the yields as attractive.''
The 10-year yield may drop to 4.25 percent in the next month, Yoshihara said.
Housing `Cooling'
In a statement after their rate-setting meeting on Dec. 12, policy makers said inflation remains a risk while noting a ``substantial cooling'' in the housing market.
Since then, reports such as a price index closely watched by the Fed showed inflation is in check. The Commerce Department's price gauge, the personal consumption expenditure index, excluding food and energy costs, was unchanged after a 0.2 percent increase in October. Compared with November 2005, the price index was up 2.2 percent, the smallest year-over-year gain since May.
The Fed will release the minutes of its December meeting on Jan. 3, it said yesterday, delayed by a day because of the national day of mourning for President Ford.
The Treasury Department will continue with bill auctions scheduled for Jan. 2. The auctions will occur earlier than previously scheduled. The noncompetitive and competitive closing times for the 13-week and 26-week Treasury bills will be 11 a.m. and 11:30 a.m. respectively, the department said. |
