Treasuries Poised for Third Weekly Decline on Outlook for Growth

New York (Feb 21) Treasuries headed for a third weekly loss on speculation the economy will pick up when the U.S. winter ends.

The Bloomberg U.S. Treasury Bond Index (BUSY) dropped 0.3 percent this month through yesterday as the Federal Reserve indicated it will continue to cut its bond purchases given the economic outlook. Snow and ice storms have depressed data on retail sales and employment. An industry report today will show existing home sales fell in January from December, according to a Bloomberg News survey of economists.

“We remain bullish on the U.S. economy and expect Treasury yields to rise further after the temporary impact of the winter clears,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “Some recent data might have been distorted by the extreme weather. We should have some clarity about the extent of the distortion in spring.”

U.S. 10-year yields were little changed at 2.76 percent as of 6:59 a.m. in New York, Bloomberg Bond Trader data show. The rate has increased one basis point, or 0.01 percentage point, this week. The price of the 2.75 percent note due in February 2024 was 99 30/32. The 10-year yield has climbed from this year’s low of 2.57 percent set on Feb. 3.

The benchmark 10-year yield will rise to 3.35 percent by mid-2014, according to Societe Generale’s forecast. The rate will rise to 3.05 percent by the end of the second quarter, according to the median forecast of financial institutions surveyed by Bloomberg.

Bond Returns

Treasuries returned 1.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds gained 1.8 percent while Japanese securities rose 1 percent.

The decline in Treasuries this month is a shift from January, when the Bloomberg index surged 1.8 percent, the most since May 2012, as a rout in emerging-market currencies spurred demand for the haven of government debt.

A custom Bloomberg gauge tracking 20 developing-nation currencies has risen 1.1 percent in February, stabilizing after tumbling 3 percent in January.

Long-term Treasuries rank the worst-performing government bonds over the past year. U.S. debt due in a decade and longer slid 5 percent in the period, the biggest loss of 144 bond indexes compiled Bloomberg and the European Federation of Financial Analysts Societies.

China Investment

China, America’s largest foreign creditor, reduced holdings of Treasuries by 3.6 percent in December to $1.27 trillion, based on the latest Treasury Department data. It’s “normal” for the nation to cut its stake in U.S. debt, as it is to increase it, the Hong Kong Economic Journal reported, citing the People’s Daily. China will continue to invest in the U.S. bond market, the report said.

U.S. existing home sales fell 4.1 percent last month, following a 1 percent gain in December, based on a Bloomberg News survey of economists. Retail sales dropped 0.4 percent and the nation added 113,000 jobs during the month, both less than what Bloomberg surveys projected.

Source: Bloomberg