Treasuries Plunge as Obama Says He Sees Fiscal Cliff Resolution

Sunday, 18 Nov 2012 09:46 PM

Treasuries fell, headed for the steepest loss in almost two weeks, after President Barack Obama expressed confidence the U.S. will avoid the automatic spending cuts and tax increases scheduled to occur at year-end.

Nomura Holdings Inc., one of the 21 primary dealers that underwrite the U.S. debt, is trimming its position as officials make progress on the so-called fiscal cliff. Treasuries also fell before an industry report that economists said will show sales of previously owned U.S. homes were near the most in two years in October.

“There’s a high probability that the fiscal cliff will be resolved,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “The economy is improving gradually. Investors should put their money in equities.”

Ten-year yields increased one basis point, or 0.01 percentage point, to 1.59 percent as of 10:05 a.m. in Tokyo, Bloomberg Bond Trader data show. The 1.625 percent security due in November 2022 declined 1/8, or $1.25 per $1,000 face amount, to 100 9/32.

The rate is less than the 10-year average of 3.68 percent. The last time yields rose as much was Nov. 6.

“I am confident we can get our fiscal situation dealt with,” Obama said yesterday at a news conference in Bangkok, where he started a three-nation Asian trip.

Before Obama left, he began on a round of deficit-reduction talks with top Republicans and Democrats to avoid the combination of $607 billion in automatic tax increases and spending cuts that threatens to throw the country into a recession.

‘Right Direction’

“In light of recent developments out of D.C., and political leaders at least trying to move in the right direction and avert a hard fiscal cliff, we think it’s prudent to pare back on some of our tactical bullish expressions in our portfolio,” George Goncalves, the head of interest-rate research at Nomura, wrote to clients Nov. 16.

Purchases of existing homes probably held at a 4.75 million annual rate last month, according to the median forecast in a Bloomberg survey before a report today from the National Association of Realtors. Sales climbed at an annual rate of 4.83 million units in August, which was the most since May 2010.

Housing starts probably eased in October to an 840,000 pace from a four-year high of 872,000 units in September, Commerce Department figures tomorrow may show.

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