High-yield/macroeconomics (fka YIELD)

[Preciouslife1]

Treasuries Gain a Fifth Week, Driving Yields to Record Lows

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJQ4qKRZ5OGQ&refer=home
By Daniel Kruger and Dakin Campbell

Dec. 6 (Bloomberg) ** Treasuries gained for a fifth consecutive week, pushing yields to record lows, as companies slashed the most jobs in 34 years last month and the Federal Reserve contemplated buying U.S. debt as the recession deepened.

Yields on two-, 10- and 30-year securities fell to the lowest levels since the Treasury began regular sales of the debt. Three-month bill rates lingered at 0.01 percent, the least since January 1940. The difference between two- and 10-year note yields narrowed to the smallest amount since September after Fed Chairman Ben S. Bernanke said the central bank may buy Treasuries to target long-term interest rates to revive the economy.

“You’ve rallied to points that are unprecedented from T- bills to 30-year bonds,” said Jamie Jackson, who oversees government debt trading at RiverSource Investments in Minneapolis, which manages $90 billion of bonds. “That’s obviously pricing in a pretty dire economic environment.”

The yield on the 10-year note plummeted 22 basis points, or 0.22 percentage point, this week to 2.71 percent, according to BGCantor Market Data. It touched 2.505 percent yesterday, the lowest since at least 1962 when the Fed’s daily records on the note began in 1962, and since 1954 on a monthly basis. The 3.75 percent security due in November 2018 climbed 1 29/32, or $19.06 per $1,000 face amount, to 109.

Two-year note yields dropped to 0.77 percent, the lowest level since regular sales began in 1975. The five-year note yield reached 1.48 percent yesterday. The 30-year Treasury bond yield touched 3.005 percent, the lowest since regular sales of the security began in 1977.

‘Extreme’ Risk Aversion

Non-farm payrolls in the U.S. shrank by 533,000 in November, the 11th month that companies have cut jobs, the Labor Department said yesterday. That was above the 335,000 median estimate of 73 economists in a Bloomberg News survey.

Rates on Treasury bills are near zero as investors sacrifice returns to ensure the safety of their cash. U.S. debt of all maturities has returned 12.3 percent this year while the Standard & Poor’s 500 Index has lost 40 percent.

“People are just flocking to Treasuries,” said Richard Schlanger, a portfolio manager at Pioneer Investments in Boston, which oversees $44 billion in fixed income.
“All you can say is, ‘My God.’ Things are going to get progressively worse.”

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both record highs in a survey that goes back 29 years, the Mortgage Bankers Association said.

The Fed bought $5 billion of Fannie Mae, Freddie Mac and Federal Home Loan Bank corporate debt yesterday under a new program aimed at reducing mortgage costs.

‘Extreme Duress’

Evidence of a deepening recession has raised speculation lawmakers will help the U.S. auto companies avert bankruptcy and pass a bigger-than-expected fiscal stimulus package in President-elect Barack Obama’s first days in office.
The chief executives of General Motors Corp., Chrysler and Ford Motor Co. addressed House Financial Services committee members yesterday as they renewed calls for government help.

Jared Bernstein, an economist at the Economic Policy Institute in Washington who was named yesterday as chief economist and economic policy director to Vice President-elect Joe Biden, said the job losses mean any economic stimulus to combat the recession likely will have to be larger than originally anticipated.

Economists such as Kenneth Rogoff, a Harvard University professor, and Joseph Stiglitz, a Columbia University professor and Nobel Prize winner, have called for at least $1 trillion in government spending to spur the economy.

‘Clearly A Bubble’

The difference in yield between two- and 10-year notes narrowed 16 basis points to 1.78 percentage points, the third straight weekly decline.

Futures contracts on the Chicago Board of Trade show 84 percent odds that policy makers will lower the 1 percent target rate for overnight lending between banks by 75 basis points on Dec. 16, up from 32 percent a week ago. The rest of the bets are for a 50 basis-point cut.

“Why anyone would give money to the United States government for 30 years at three or four percent is beyond comprehension,” said Jim Rogers, chairman of Rogers Holdings in Singapore, in an interview yesterday on Bloomberg Television. “Everyone is pumping bonds like crazy. It’s clearly a bubble.”

Money-market rates show banks are reluctant to lend to each other. The difference between what lenders and the Treasury pay to borrow money for three months, the so-called TED spread, was little changed 218 basis points yesterday. The spread reached 464 basis points on Oct. 10, the most since Bloomberg began tracking the figure in 1984.