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Treasuries Rise as Japan Says It’s Confident About U.S. Debt

http://www.bloomberg.com/apps/news?pid=20602007&sid=ai1TA3EkJyCk#


By Susanne Walker and Gavin Finch
June 12 (Bloomberg) -- Treasuries rose after Japanese Finance Minister Kaoru Yosano said his nation’s confidence in U.S. debt is “unshakable,” reducing concern foreign investors will slow purchases amid record debt sales.
Yields on 30-year bonds touched the lowest level in three days. The government’s auction of $11 billion of the securities yesterday attracted the most demand from a group of investors that include central banks since the U.S. resumed selling bonds in 2006. Ten-year note yields reached 4 percent yesterday, the highest since October. The Treasury’s won’t sell any so-called coupon securities next week.
“Given the backup in yields, a lot of people wanted to buy,” said Jeffry Feigenwinter, head of Treasury trading at BNP Paribas Securities, one of 16 primary dealers required to bid at Treasury auctions. “There’s no supply and a couple of buybacks next week so we’re getting a relief rally.”
The yield on the 10-year note fell six basis points, or 0.06 percentage point, to 3.81 percent at 10:06 a.m. in New York, according to BGCantor Market Data. The 3.125 percent security due May 2019 rose 14/32, or $4.38 cents per $1,000 face amount, to 94 13/32.
The 30-year bond yield fell seven basis points to 4.62 percent.
Multicurrency Bonds
Treasuries extended gains after confidence among U.S. consumers rose less than forecast in June. The Reuters/ University of Michigan preliminary index of consumer sentiment increased to 69 from 68.7 in May, below the 69.5 median forecast of 62 economists surveyed by Bloomberg News.
Brazil and Russia joined China this week in saying they would shift some $70 billion of reserves into multicurrency bonds issued by the International Monetary Fund, spurring concern foreign central banks would diversify away from U.S. assets.
“The U.S. dollar’s position as the world’s reserve currency isn’t under threat,” Yosano, 70, said in an interview in Tokyo on June 10 before attending a Group of Eight nations meeting of finance ministers starting today in Italy. “Our trust in U.S. Treasuries is absolutely unshakable.”
Indirect bidders bought 49 percent of the bonds on offer yesterday, the biggest percentage since the Treasury reintroduced the 30-year security in 2006.
“It was particularly telling that strong foreign interest for U.S. bonds came at a time when Brazil and Russia announced plans to buy $20 billion of bonds from the IMF,” Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment banking arm of Credit Agricole SA, wrote in a research note today.
‘On Notice’
Leaders of Brazil, Russia, India and China, the so-called BRIC countries, are scheduled to meet on June 16 in Russia to discuss their economies.
Mark Mobius, who oversees $20 billion of emerging-market assets at Templeton Asset Management Ltd. in Singapore, said the real focus of the BRIC agenda is the U.S.’s projected $1.85 trillion deficit for 2009 and $787 billion economic-stimulus plan. They’re both sparking fears among creditors that the dollar will fall and inflation will accelerate.
“The BRICs are putting the U.S. on notice that there has to be a cutback on spending and get their house in order,” Mobius said in a telephone interview.
China is the largest U.S. creditor, holding $767.9 billion of U.S. debt as of March, according to Treasury Department figures. Japan is second with $686.7 billion.
The sell-off that pushed benchmark yields to 4 percent this month left the market down 6.2 percent so far in 2009, according to Merrill Lynch & Co.’s U.S. Treasury Master index. The securities haven’t posted an annual decline since 1998, according to the index.
Rising Rates
President Barack Obama is selling a record amount of debt to try to end the steepest U.S. recession in 50 years. The jobless rate increased to 9.4 percent in May, the highest since 1983.
The government may borrow a record $3.25 trillion this fiscal year ending Sept. 30, almost four times the $892 billion in 2008, according to Goldman Sachs Group Inc., one of the primary dealers at U.S. debt sales.
The Treasury’s next auction of securities is set for June 23 when it sells two-, five- and seven-year notes over three consecutive days.
Rising yields are undermining Fed Chairman Ben S. Bernanke’s efforts to cap consumer borrowing costs. Ten-year yields have risen nearly 130 basis points since the Fed announced its $300 billion, six-month Treasury purchase program on March 18. The average 30-year mortgage rate jumped to 5.59 percent from 5.29 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said yesterday in a statement.
Slowing the Pace
The central bank is slowing its pace of Treasury purchases as traders speculate it may be forced to accelerate the acquisitions as yields rise. The Fed announced this week that it will buy Treasuries four times over the next two weeks, the second consecutive two- week period of four so-called coupon passes. That’s down from five operations held during four of the five prior two-week periods since the program to buy debt to help lower borrowing costs began on March 25.
In the week, 10-year yields fell one basis point. The yield will fall to 3.65 percent by year-end, according to a Bloomberg survey of economists, with the most recent forecast given the heaviest weighting.
The rise in longer-maturity securities narrowed the yield difference between 10-year and two-year notes to 2.50 percentage points, down from a record 2.81 percentage points set on June 5.



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