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Dec. 15 (Bloomberg) -- Former Federal Reserve Bank of Richmond President Alfred Broaddus talks about the outlook for U.S. Treasuries, Fed monetary policy and the performance of the U.S. economy. Broaddus speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
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Dec. 15 (Bloomberg) -- David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley, discusses the Treasury market, economy and inflation risk. He talks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)
Dec. 21 (Bloomberg) -- Treasuries advanced, pushing the yield on the benchmark 10-year note toward a one-week low, after the Federal Reserve purchased $9.4 billion of notes and inflation-indexed debt.
Yields have increased about 1 percentage point from their 2010 low on speculation the U.S. extension of tax cuts will spur economic growth and widen the budget deficit. Yields rose earlier today as a gain in stocks reduced demand for the safety of government debt.
?The good news is that the market hasn?t fallen apart today, but the bad news is that with the Fed purchases the market should arguably be higher,? said Theodore Ake, head of Treasury trading at Societe Generale SA in New York. ?Activity levels are very light, so flows are exaggerated. That condition should hold into next week.?
The 10-year note yield decreased four basis points, or 0.04 percentage point, to 3.31 percent at 5:06 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 advanced 10/32, or $3.13 per $1,000 face amount, to 94 9/32.
The 10-year note yield fell to 3.25 percent yesterday, the lowest level since Dec. 10. The yield slid to the 2010 low of 2.33 percent on Oct. 8. The yield rose on Dec. 16 to 3.56 percent, the highest level since May 13.
?More Neutral?
?The market is more neutral near these levels given the strength of the recent sell-off,? said Joseph Leary, an interest-rate strategist in New York at Citigroup Inc., one of the 18 primary dealers that trade directly with the Fed. ?Fair value for 10-years is closer to 3 percent, but we would be reluctant to go long on the long end with so much illiquidity in the market until the new year.? A long is a bet that an asset will gain in value.
The 10-year note yield will slide to 3.05 percent by March 31, according to the average forecast in a Bloomberg News survey of 67 strategists and economists, with the most recent forecasts given the heaviest weightings.
More than 65 percent of respondents in a Citigroup survey of money managers, insurance companies and other financial services groups expect 10-year note yields to rise by the end of the first quarter of next year, Neela Gollapudi, an interest- rate strategist in New York at Citigroup, said in a telephone interview. Gollapudi said 53 percent expect the yield will increase to a level higher than 3.50 percent. He declined to say how many participated in the survey.
Fed Debt Buying
The central bank bought $7.790 billion of notes today maturing from June 2016 to November 2017 and $1.619 billion of Treasury Inflation Protected Securities due from July 2012 to February 2040.
Traders are adding to bets that inflation will pick up. The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices over the life of the securities known as the break-even rate, has advanced to 2.31 percentage points, up from this year?s low of 1.47 in August. The five-year average is 2.09 percentage points.
The central bank purchased debt yesterday maturing from 2018 to 2020 and from 2014 to 2016, taking up $14.6 billion in securities, the biggest amount in a single day under the second round of quantitative easing.
Bond yields dropped earlier today as Moody?s Investors Service said it put Portugal?s A1 long-term and Prime-1 short- term government bond ratings on watch. It lowered Ireland?s rank by five levels on Dec. 17 and said two days earlier that it may reduce Spain?s rating, citing ?substantial funding requirements.?
Fitch on Greece
Fitch Ratings said today it may cut Greece?s credit rating to below investment grade within six weeks after a review of the nation?s ?fiscal sustainability.?
The Fed authorized the extension through Aug. 1 of its temporary dollar liquidity swap arrangements with the European Central Bank and the central banks of Japan, Canada, Switzerland and the United Kingdom.
The arrangements had been authorized through January, the Fed said today in a statement. Fed officials voted in May to restart the emergency currency-swap tool to keep Europe?s sovereign-debt crisis from spreading to U.S. markets.
Yields rose earlier as stocks extended their advance. The Standard & Poor?s 500 Index increased 0.6 percent, completing its recovery from the plunge after Lehman Brothers Holdings Inc.?s collapse in 2008.
Treasuries have handed investors a loss of 2.1 percent this month, paring this year?s returns to 5.6 percent, according to Bank of America Merrill Lynch indexes. Debt issued by euro-area governments has gained 1.2 percent in 2010, with Irish and Portuguese debt losing 13 percent and 7.9 percent, respectively.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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