Treasuries Remain Lower Before U.S. Home Data as Fed Stimulates
By Masaki Kondo - Mar 21, 2013
Treasuries remained lower following a decline yesterday before data that economists say will show the Federal Reserve’s monetary stimulus is helping bolster the U.S. housing market.
Ten-year yields climbed yesterday by the most in almost two weeks after the central bank reiterated its commitment to purchases of government and mortgage debt. The Treasury will announce the details of bond auctions planned for next week.
“I’ve become even more optimistic about the U.S. economy,” said Masaru Hamasaki, the chief strategist at Toyota Asset Management Co., which oversees the equivalent of $19 billion in Tokyo. “Strong monetary easing, like the one the Fed is now doing, typically spurs buying of bonds at first, but improvement in economic fundamentals will gradually drive up bond yields.”
The yield on the benchmark 10-year note was little changed at 1.96 percent as of 2:14 p.m. in Tokyo. It rose six basis points yesterday, the biggest gain since March 7. The 2 percent security due in February 2023 traded at 100 11/32.
Japan’s 10-year bond yield slid as much as 1 1/2 basis points to 0.58 percent, the lowest since June 2003. Ten-year Japanese bond futures climbed to 145.57, the highest on record for lead contracts.
Government figures will probably show today that purchases of previously owned homes in the U.S. increased to a 5 million annual rate, the strongest since November 2009, according to the median estimate of economists surveyed by Bloomberg News. A separate report may show home prices in the nation rose 0.7 percent in January from the prior month, the most since April, economists estimate.
Bond Auctions
The Treasury may say today that it will auction $35 billion of two-year debt on March 26, the same amount of five-year notes the next day and $29 billion of seven-year bonds on March 28, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey. The U.S. government is scheduled to sell $13 billion of 10-year inflation-protected securities today.
The Fed will buy as much as $1.75 billion of Treasuries maturing from February 2036 to February 2043. It is purchasing $85 billion of government and mortgage debt a month in its so- called quantitative easing program aimed at stimulating the economy through lower borrowing costs.
“Interest rates are so low that they are attractive for home buyers,” said Toyota Asset’s Hamasaki.
Fed Projections
The central bank left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.
Fed officials forecast the jobless rate will hit their threshold for raising interest rates sometime in 2015, while projecting faster growth this year.
They predicted the jobless rate will average 6.7 percent to 7 percent in the final quarter of 2014 and 6 percent to 6.5 percent in 2015, according to their central-tendency estimates. The economy will expand 2.3 percent to 2.8 percent this year, they estimated, compared with their earlier forecast of 2.3 percent to 3 percent growth.
“There is a view that we can buy Treasuries without any concern for the time being” because of the Fed’s purchases as well as its commitment to the low benchmark rate, said Jun Kawakami, a market economist at Mizuho Securities Co., a unit of Japan’s third-biggest financial group by market value.
Demand for Treasuries was also supported after lawmakers in Cyprus rejected a proposed bank deposit levy intended to finance part of an international bailout for the country. President Nicos Anastasiades of Cyprus met advisers to draft a new plan to stave off financial collapse as banks remain shut for two more days.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net
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