U.S. Treasuries Decline on Expectations Report May Show Faster Inflation
Sept. 12 (Bloomberg) -- U.S. Treasuries fell before government reports this week that may show inflation accelerated last month because of record oil prices.
Ten-year notes had their first weekly drop in five last week as investors unwound bets the Federal Reserve would pause in increasing borrowing costs in the aftermath of Hurricane Katrina. Inflation pressures are rising and the central bank must raise interest rates to keep prices contained, Chicago Fed President Michael Moskow said on Sept. 7.
``There is an impact on headline inflation with energy prices rising as high as they have,'' said Jonathan Lee, a fixed- income strategist in London at Barclays Capital. The firm is one of the 22 primary dealers of U.S. government securities that trade with the Fed's New York branch. ``There is quite a bit of room for Treasuries to sell off in line with the Fed continuing with their hiking path.''
The yield on the benchmark 10-year note rose 3 basis points, or 0.03 percentage point, to 4.15 percent at 9:13 a.m. in New York, according to bond broker Cantor Fitzgerald LP. Bond yields move inversely to prices. The yield increased 12 basis points last week, and is up from 3.98 percent on Sept. 1.
The price of the 4 1/4 percent note due in August 2015 fell 1/4, or $2.50 per $1,000 face amount, to 100 3/4. Barclays last week cut its year-end 10-year yield forecast to 4.5 percent from 4.9 percent.
Traders today continued to expect a greater chance the central bank will raise its target for the overnight lending rate between banks to 3.75 percent from 3.5 percent at its next meeting on Sept. 20, interest-rate futures show.
The yield on October federal funds futures rose 1 basis point to 3.705 percent, putting the odds of an increase at 82 percent, up from 44 percent on Sept. 1.
Fed Outlook
``What we continue to see is the front end starting to price in more chance the Fed goes next week,'' said Sanjay Verma, head of U.S. government bond trading at Morgan Stanley & Co. in New York, referring to short-maturity Treasury debt. The firm is another primary dealer.
The yield on the 4 percent note maturing in August 2007 rose 3 basis points to 3.90 percent, the highest since Aug. 31. The difference in yields between two- and 10-year notes held at 25 basis points, compared with last week's peak of 30 basis points.
Declines in European government bonds ahead of auctions by more than half of the euro-region member countries this week also weighed on Treasuries, Verma said.
Germany, Italy and France are among seven countries scheduled to sell more than 20 billion euros ($24.6 billion) of debt this week. The yield on the German two-year bund rose 4 basis point to 2.20 percent, the highest since Aug. 31.
Oil and Bonds
Crude oil futures reached a record of $70.85 a barrel on Aug. 30 in New York. The October contract tumbled 5.2 percent last week and traded at $64.18 today. Average prices at the gasoline pump rose 17 percent in the week ended Sept. 5 to $3.11 a gallon, according to the U.S. Energy Department. The price is about two-thirds higher than a year earlier.
While oil prices have declined from their post-hurricane highs, easing concern about inflation among some investors, others see the drop as a potential boon to the economy. The Standard & Poor's 500 Index rose 1.9 percent last week, its biggest advance since May.
``Fears of a sustained slowdown may also be subsiding as energy comes of its highs and the equity markets hold on to recent strength,'' said Michael Pond, an interest-rate strategist at Barclays in New York, explaining today's drop in Treasuries.
Consumer Prices
The consumer price index will rise 3.5 percent this quarter, up from a forecast of 3 percent a month ago, according to the median estimate of 54 economists surveyed by Bloomberg between Aug. 31 and Sept. 8. Inflation erodes the value of bonds' fixed payments.
The Fed's Moskow said core inflation is ``running at the upper end of the range that I feel is consistent with price stability.''
Producer prices probably rose 0.7 percent last month, after a 1 percent gain in July, according to the median estimate of 51 economists surveyed by Bloomberg. The Labor Department will release the report tomorrow.
Two days later, the department is expected to say consumer prices gained 0.5 percent in August, matching July's advance, economists in a separate survey said. Prices excluding food and energy probably increased 0.2 percent last month, from a 0.1 percent gain in July, economists estimate.
Japanese Assets
Treasuries also fell on concern rising Japanese stocks will curb demand for overseas bonds. The Nikkei 225 Stock Average and the Topix index gained after Prime Minister Junichiro Koizumi won a landslide election victory, giving him a mandate to sell state assets. The Nikkei reached a four-year high.
``The scale of victory was a surprise and that had a positive impact on Japanese stocks,'' said Ryohei Muramatsu, manager of the currency and treasury group in Tokyo at Commerzbank AG, Germany's third-largest bank by assets. ``There will be a bigger pull to buy Japanese assets over foreign bonds and stocks.''
Japan is the largest overseas holder of Treasuries and owned about $680.2 billion out of roughly $4.1 trillion in marketable U.S. government securities as of the end of June, according to the Treasury Department.
To contact the reporters on this story:
Steve Rothwell at
[email protected]
Last Updated: September 12, 2005 09:16 EDT
Quindi: si fan spazio per le aste, monetizzano prima dei dati e della FED... poi salirà tutto di nuovo
