Tags: Treasurys | yield | bonds | investment

Treasurys Fall on Easing Political Tensions, 14-Month-Low Yield

Monday, 18 August 2014 09:25 AM

Treasury 10-year notes fell for the first time in four days as yields at almost the lowest level in 14 months and easing geopolitical tensions from Ukraine to Iraq eroded demand for the safest securities.

U.S. debt declined before government data this week that economists said will show housing starts rebounded in July and initial jobless claims dropped last week. Standard & Poor’s 500 Index futures advanced as investor appetite shifted to stocks from bonds. The Federal Reserve will publish minutes of its July 29-30 meeting on Aug. 20, two days before Fed Chair Janet Yellen is due to speak at Jackson Hole Symposium in Wyoming.

“Geopolitical risks are starting to subside,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “We’ve gone a little bit too far, too fast. Overall the economy is not gangbusters, but it’s doing fairly well.”

The benchmark 10-year yield rose three basis points, or 0.03 percentage point, to 2.37 percent at 8:30 a.m. in New York, according to Bloomberg Bond Trader data. The 2.375 percent note due August 2024 fell 1/4, or $2.50 per $1,000 face amount, to 100 1/32. The yield slid to 2.30 percent on Aug. 15, the lowest level since June 2013.

S&P 500 Index futures gained 0.5 percent. The gauge of U.S. equities has risen 5.8 percent this year through Aug. 15. The Bloomberg U.S. Treasury Bond Index climbed 4.4 percent during the same period.

Truce Talks

The yield on 10-year Treasurys has fallen almost 20 basis points since July 31, headed for the biggest monthly decline since January. The rate will climb to 2.92 percent by year-end, according to a Bloomberg survey of analysts with the most recent forecasts given the heaviest weighting.

Officials from Ukraine, Russia and other countries met to discuss a truce in separatist-held territory in eastern Ukraine.

Kurdish forces took control of most of Iraq’s largest dam, reversing some of the gains made by Islamic State militants. Israeli soldiers and Palestinian fighters are observing a cease- fire.

Treasurys due in 10 years or longer have returned 3.2 percent this month, the best performers among the 144 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.

U.S. yields probably won’t rise from current levels in 2014, said Stephen Roberts, an economist at Melbourne-based Laminar Group Pty, a fixed-income investor and adviser.

Yields Attractive

Ten-year Treasury yields are attractive compared with Japanese or European bonds, Roberts said. Germany’s benchmark fell below 1 percent last week for the first time. The Fed will probably raise interest rates before the central banks in Japan or Europe, which will support the dollar, he said.

“Overseas investors still have a great interest in buying U.S. Treasurys,” he said. “Yields can still be well- contained.”

Nippon Life Insurance Co., Japan’s biggest life insurer, plans to double its overseas bond holdings to 4 trillion yen ($39.1 billion) within a few years, the Sankei newspaper reported Aug. 16.

The decision has been prompted by the Bank of Japan’s monetary easing strategy that pushed domestic yields down, Sankei said, without disclosing where it got the information.

Jackson Hole

There’s a 65 percent chance the Fed will raise its target for overnight bank lending from the current range of zero to 0.25 percent by September, futures data compiled by Bloomberg showed on Aug. 15.

Minutes of the Fed’s July 29-30 meeting, when officials kept the benchmark rate unchanged and trimmed monthly bond purchases to $25 billion, will be published Wednesday. Two days later, Yellen is scheduled to speak at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. The focus of the event, which begins Aug. 21, is “re-evaluating labor market dynamics.”

“The market will watch closely what the Fed and Yellen will say about the improvement in the labor market and lack of wage pressure,” said Richard Kelly, senior strategist at Toronto-Dominion Bank in London.

First-time claims for jobless benefits fell in the week through Aug. 16, after climbing to the highest in six weeks in the previous period, a survey forecast before the Labor Department releases the data on Aug. 21.

U.S. housing starts jumped 8.4 percent last month to an annual rate of 968,000, the first increase since April, according to a Bloomberg News survey before tomorrow’s Commerce Department report.

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Treasury 10-year notes fell for the first time in four days as yields at almost the lowest level in 14 months and easing geopolitical tensions from Ukraine to Iraq eroded demand for the safest securities.
Treasurys, yield, bonds, investment
Monday, 18 August 2014 09:25 AM
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