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U.S. 30-Year Bond Declines on Speculation Rally Was Too Fast
http://www.bloomberg.com/apps/news?pid=20602007&sid=aRqnKpkAxvsU&refer=govt_bonds#
By Dakin Campbell and Cordell Eddings
Dec. 2 (Bloomberg) -- U.S. 30-year bonds fell for the first time in five days as traders speculated the rally that pushed yields to record lows was too fast to sustain.
Yields on the so-called long bond plunged yesterday after Federal Reserve Chairman
Ben S. Bernanke said the central bank may purchase Treasuries to help bolster the economy. An indicator showed 30-year bonds were poised to fall after reaching the most overbought levels in more than 12 months.
“The buying over the last few days may have been a bit much,” said
Tom Tucci, head of U.S. government bond trading in New York at RBC Capital Markets, the investment-banking arm of Canada’s biggest lender. “There still isn’t much downside in Treasuries right now, especially in the front end of the curve after Bernanke’s comments.”
The yield on the 30-year bond rose five basis points, or 0.05 percentage point, to 3.25 percent at 10:58 a.m. in New York, according to BGCantor Market Data. The price of the 4.5 percent security due in May 2038 fell 1 5/32, or $11.56 per $1,000 face amount, to 123 20/32.
The 10-year yield was little changed at 2.71 percent. It declined to 2.65 percent yesterday. The two-year note’s yield was 0.90 percent, close to a record low of 0.85 percent reached yesterday.
Treasuries pared earlier gains as stocks advanced, with the Standard & Poor’s 500 Index gaining 2.5 percent.
Long Bond
Thirty-year
bonds are returning 27.8 percent this year, the most since 1995, as investors bet the Fed will buy the securities to help bring down long-term borrowing costs.
Yields on the long bond touched 3.1825 percent yesterday, the lowest since the U.S. began regular auctions of the securities in 1977, after Bernanke said he has “limited” room to reduce interest rates much further and may use less conventional policies.
Investors rushed into
Treasuries and pushed returns in November to 5.4 percent, the biggest monthly gain since 1981, a Merrill Lynch & Co. index shows. U.S. government debt gained 11.4 percent this year, the most since 2002.
An indicator used by some traders to predict changes in the direction of prices showed 30-year bonds were poised to fall after reaching the most overbought levels in more than 12 months. The 14-day relative strength index for 30-year bond futures contracts due in March rose today, touching 78.1, from 62.3 Nov. 18. A reading above 70 indicates the notes are overbought, while one below 30 indicates oversold conditions.
The reading was the highest for the index since Nov. 26, 2007, when it touched 82.
Yields on the 30-year bond rose 38 basis points over the next 30 days.
More Bearish
Treasuries investors were more bearish this week, a weekly survey of clients by JP Morgan Securities Inc. showed. The net percentage of investors betting on rising prices fell to 13 percent, from 17 percent last week. The figure is the difference between the percentage of investors holding long positions, or bets on higher prices, and those taking short positions, bets on falling prices. The majority of respondents expected no change.
Futures on the Chicago Board of Trade show 56 percent odds the Fed will lower its 1 percent target rate for overnight bank lending by a half-percentage point on Dec. 16 and a 44 percent chance of a three-quarter-percentage point cut.
Traders also sought long-term securities after the Fed said Nov. 21 it will buy as much as $600 billion of mortgage debt, fueling demand for Treasuries as a replacement for bonds backed by home loans that may be repaid early.
U.S. Recession
President-elect
Barack Obama, who assumes power in January, will take control of an economy that entered a recession a year ago, according to a statement yesterday from the National Bureau of Economic Research, the panel that dates American business cycles. The longest slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982.
General Motors Corp.,
Ford Motor Co. and Chrysler LLC union leaders are scheduled to meet tomorrow in Washington as the companies seek concessions from the
United Auto Workers to win $25 billion in government loans.
Treasury yields had dropped enough to raise speculation investors would look elsewhere to make new purchases.
“Treasuries are becoming less attractive,” said
Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-largest brokerage, which has the equivalent of $103.9 billion in assets. “Corporate bonds and asset-backed securities will draw investors.”
Money-market rates indicated banks are still reluctant to lend. The three-month London interbank offered rate for dollars was 2.21 percent today, one basis point lower than yesterday, and the equivalent Tokyo gauge,
Tibor, rose to a 10-year high of 0.89 percent.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called
TED spread, widened to 215 basis points from 2008’s low of 76 basis points set in May. The spread reached 464 basis points on Oct. 10, the most since Bloomberg began compiling the data in 1984.
Rates on three-month Treasury bills gained two basis points to 0.06 percent. They had remained at 0.4 percent since Nov. 26.
