Wednesday, 17 July 2013

Treasury 10-Year Yield Nears Week Low Before Bernanke Testimony

By Kristine Aquino & Kevin Buckland - Jul 17, 2013 9:44 AM GMT+0400
Treasury 10-year note yields approached a one-week low amid speculation Federal Reserve Chairman Ben S. Bernanke will seek to manage expectations for the timing and pace of stimulus reduction in testimony to Congress today.
The gap between yields on benchmark Treasuries and U.K. government bonds widened to 27 basis points yesterday, the most since 2006, before U.S. reports today that may show gains in housing starts and building permits. Kansas City Fed President Esther George said in a speech yesterday she expects stronger growth as early as 2014.
July 17 (Bloomberg) -- Deutsche Bank AG Co-Chief Executive Officer Anshu Jain talks about the outlook for China's economy and the bank's business strategy in Asia. Jain also discusses the impact of Federal Reserve monetary policy on markets, the U.S. economy and the dollar. He speaks in Singapore with Haslinda Amin on Bloomberg Television's "On the Move." (Source: Bloomberg)
“Bernanke is trying to get a message over to markets about what the tapering in Treasuries and mortgage-backed securities might mean,” said Tony Morriss, the head of interest-rate research at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “It’s simply reducing the amount of Treasuries and MBS the Fed buys, it’s not like they’re ending it right away,” Morriss said, adding that he doesn’t see 10-year yields moving toward 3 percent until 2014.
The yield on 10-year notes declined two basis points, or 0.02 percentage point, to 2.52 percent as of 6:41 a.m. in Londonafter falling to as low as 2.51 percent yesterday, the least since July 5. The price of the 1.75 percent security maturing in May 2023 rose 1/8, or $1.25 per $1,000 face amount, to 93 11/32.
Japan’s 10-year government bond yield slid one basis point to 0.815 percent. It closed at that level on July 12, the lowest end to a trading day since June 19.

Bernanke Testifies

Bernanke will appear before U.S. House members today and senators tomorrow to present the Fed’s semi-annual monetary policy report. “Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” he said last week in response to a question after a speech in Cambridge, Massachusetts.
Commerce Department data today may show housing starts rose to a 960,000 annualized rate last month from a 914,000 pace in May, according to the median estimate of economists surveyed by Bloomberg News. That would be the most since March. Building permits (NHSPATOT) probably climbed to a 1 million annualized pace in June from a revised 985,000 rate in the previous month.
The cost of living in the U.S., as measured by the consumer price index, rose in June by the most in four months, according to a Labor Department report yesterday. That indicates inflation is advancing toward the Fed’s 2 percent goal.

‘Self-Sustaining’ Recovery

“We are certainly expecting that the data is going to remain solid,” said Adam Donaldson, head of debt research at Sydney-based Commonwealth Bank of Australia (CBA), the nation’s largest lender. “Recovery is self-sustaining, and we will be seeing a consistent strengthening spreading from the housing sector through the rest of the economy.”
The rate on benchmark U.S. government debt will probably climb to 2.62 percent by the end of 2013, according to the weighted average forecast in a Bloomberg poll of economists. CBA’s Donaldson sees the 10-year Treasury yield at 3 percent by Dec. 31.
“If unemployment falls as expected and inflation moves toward the 2 percent goal, then reducing the pace of purchases in September and ending them next year is appropriate,” Kansas City Fed President George said yesterday.
Bank of England Governor Mark Carney and European Central Bank President Mario Draghihave signaled in separate statements this month that the benchmark rates of the two central banks will remain at record lows. The 10-year Treasury yield was 102 basis points more than the rate for equivalent German bunds on July 12, the biggest gap since 2006.

U.S. Growth

The U.S. will probably grow 1.8 percent this year, according to the median estimate of economists surveyed by Bloomberg. The U.K. may expand 0.95 percent, while the euro-area economy will shrink 0.6 percent, separate polls showed.
“This was an unprecedented program and the fact that they’ve been able to announce the end to it or the impending end to it without a major dislocation has to be very pleasing for them,” Deutsche Bank AG co-Chief Executive Officer Anshu Jain said in a Bloomberg Television interview, referring to the Fed’s monetary policy. “I daresay without any special knowledge that the Fed would be delighted with the market reaction.”
Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index was at 88 yesterday, the lowest level since June 19. The figure is down from 117.89 on July 5, the highest since December 2010. The one-year average is 64.5.
Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose 35 percent to $256.2 billion yesterday from $189.2 billion on July 15. The 2013 average is $320 billion.
To contact the reporters on this story: Kristine Aquino in Singapore at; Kevin Buckland in Tokyo at
To contact the editor responsible for this story: Rocky Swift at