Treasuries head for first monthly loss this year on Fed outlook
Treasuries headed for their first monthly loss this year before a government report forecast to show consumer spending, which accounts for about 70 percent of the U.S. economy, is increasing.
Shorter-term borrowing costs rose as traders speculated growth will be enough to lead the Federal Reserve to raise interest rates in 2015. The difference between five- and 30year yields narrowed to 1.79 percentage points this week, the smallest spread since 2009. Fed Bank of Chicago President Charles Evans said the central bank will probably raise interest rates in the second half of next year.
"There's more probability of a bearish market in Treasuries," said Wontark Doh, the head of overseas fixedincome investment at Samsung Asset Management Co., South Korea's largest private bond investor. Treasuries were little changed, with the benchmark 10-year yield at 2.68 percent as of 7:05 a.m. in London, according to Bloomberg Bond Trader prices. The average over the past decade is 3.46 percent.
The price of the 2.75 percent security due in February 2024 was 100 19/32. Treasuries have fallen 0.1 percent this month, based on the Bloomberg U.S. Treasury Bond Index (BUSY), set for their first decline since December.
Doh said he'd consider buying Treasuries if the 10-year yield rises to 2.8 percent or 2.9 percent. Samsung Asset manages the equivalent of $105.7 billion.
Japan's 10-year yield was little changed at 0.63 percent. Australia's fell one basis point to 4.07 percent. A basis point is 0.01 percentage point. The Bloomberg Global Developed Sovereign Bond Index (BGSV) is little changed for March. It has risen 3 percent this year, poised for its best quarterly performance in almost three years. U.S. personal spending probably rose 0.3 percent in February, following a 0.4 percent gain in January, according to a Bloomberg News survey of economists before the Commerce Department report today. Personal income also increased 0.3 percent, based on the responses. The report contains the Fed's preferred inflation measure, which probably slowed to a year-on-year rate of 0.9 percent from 1.2 percent in January, according to the survey. The figure has been below the Fed's 2 percent target for almost two years.
Thomson Reuters/ University of Michigan will confirm a drop in consumer confidence for March after reporting the decline on a preliminary basis two weeks ago, a separate survey shows.
Primary dealers had a net position of negative $5.2 billion in coupon-bearing Treasuries in the week ended March 19, according to a report yesterday by Ward McCarthy and Thomas Simons at Jefferies LLC in New York.
It was the first so-called net short position since September 2011, according to the report. Jefferies is one of the 22 dealers, those companies that underwrite the U.S. debt. While Treasuries may fall later in 2014, April may start with a rally, said Weihan Chen, a bond trader at Hontai Life Insurance Co. in Taipei.
Some investors may buy as the month and the first quarter close to put the bonds and notes sold this year into their portfolios, Chen said.