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Jan-01-2011Treasuries Rally on 9.8% Unemployment Rate, Low Inflation, European Crisis(topic overview)
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s Dollar Index gained 1.4 percent and the Reuters/Jefferies CRB Index of raw materials rose 17 percent. It was the first time since 2005 that stocks, bonds, commodities and the dollar all rose for the year. Bonds fell on Dec. 14 as the Fed announced after its policy meeting that the U.S. recovery is continuing and maintained a $600 billion second round of government debt purchases known as quantitative easing. Three days later President Barack Obama signed into law an extension of tax cuts enacted during the administration of his predecessor, George W. Bush. [1] The dealers had a net bet against Treasuries totaling $2.3 billion as of Dec. 22, down from an $81.3 billion net bet in favor of U.S. government debt on Nov. 24, the most since June 2009 and the second-most on record. Bonds fell on Dec. 14 as the Fed announced after its policy meeting that the U.S. recovery is continuing and maintained a $600 billion second round of government debt purchases known as quantitative easing. Three days later President Barack Obama signed into law an extension of tax cuts enacted during the administration of his predecessor, George W. Bush. [2]
Treasuries had their biggest monthly decrease this year on speculation the Federal Reserve'''s asset purchases and an extension of tax cuts will succeed in reviving the economy. U.S. debt also fell in December as the government completed $2.2 trillion of note and bond auctions this year, surpassing the $2.1 trillion record set in 2009. [2] Treasuries rose, paring December'''s loss, as some investors bet snow storms in the U.S. will hamper growth in the world'''s biggest economy. Bonds also gained on speculation a 1-percentage-point increase in yields from this year'''s low will attract buyers. Treasuries still headed for their biggest decline in December in a year as Federal Reserve Chairman Ben S. Bernanke '''s efforts to spur the economy increased demand for higher-yielding assets. [3]
Global bonds dropped for a fourth month on speculation gross domestic product growth will increase worldwide in 2011, leading equities to outperform debt. The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities, widened to 2.28 percentage points from this year'''s low of 1.47 percentage points in August. [4] Treasuries advanced during the first three quarters on concern the U.S. economic recovery was stalling and Europe '''s sovereign-debt crisis was spreading. Notes and bonds got a boost after the Fed said following its August meeting that it would resume buying debt to support the economy and boost inflation to an acceptable rate. [2] '''The European crisis exposed sovereigns that are worse off than we are, and Treasuries have benefited,''' said John Fath, a principal at the investment firm BTG Pactual in New York, who helps manage $2.5 billion. Notes and bonds extended their rally after the Fed said following its Aug. 10 meeting that it would resume buying debt to support the recovery of the labor market and boost inflation to an acceptable rate. [1]
Bonds gained even as the government completed $2.2 trillion of note and bond auctions in 2010, surpassing the $2.1 trillion record set in the prior year. Treasuries held in custody at the Fed for overseas accounts including foreign central banks advanced $430.1 billion to $2.616 trillion after increasing $486.8 billion in 2009 and $473.3 billion in 2008, the Fed reported this week. [1]
SEOUL (Dow Jones)--The South Korean government will sell a total of KRW82.4 trillion ($72.6 billion) treasury bonds next year, an increase of KRW4.7 trillion from this year, the Ministry of Strategy and Finance said Thursday. [5]
Fovinci said he'''s favoring company bonds over government debt. Comcast Corp., the largest U.S. cable company; Boeing Co., the second-biggest U.S. defense contractor; and JPMorgan Chase & Co., the second-largest bank in the nation, are among his recent purchases, he said. Corporate bonds gained 10 percent this year, the Bank of America data show. [3] Government debt returns for 2010 trailed the 9.1 percent reading for investment-grade corporate debt, according to Bank of America Merrill Lynch indexes. The S&P; 500 Index has advanced 13 percent this year, while IntercontinentalExchange Inc.''' [2] U.S. debt has returned 5.7 percent in 2010, more than erasing last year'''s 3.7 percent loss, according to a Bank of America Merrill Lynch index. [6]
Bonds returned 5.9 percent in 2010 after losing 3.7 percent in 2009, according to a Bank of America Merrill Lynch index. Treasuries pared their annual rally in December on bets the Federal Reserve'''s asset purchases and an extension of tax cuts will revive the economy. [1] U.S. equities have been among the big winners since Federal Reserve Chairman Ben Bernanke made clear in August that the Fed would buy more assets to boost liquidity in the U.S. economy. The S&P; 500 index, for example, is up around 20 percent since his Jackson Hole Aug. 27 speech. [7]
'''We have backed up to rates some investors are finding attractive.''' Pacific Investment Management Co., which runs the world'''s biggest bond fund, raised this month its forecast for U.S. economic growth to a range of 3 percent to 3.5 percent in 2011, versus its previous estimate of 2 percent to 2.5 percent. Government bonds are likely to extend their decline, according to Marc Faber, the publisher of the Gloom, Boom and Doom report who advised investors to buy U.S. stocks in March 2009 as the Standard & Poor'''s 500 Index began a rally of as much as 86 percent. '''This is a suicidal investment,''' Faber said in a telephone interview from St. Moritz, Switzerland, this week. [2] With U.S. interest rates at near-zero levels, Mr Faber, the investor who recommended U.S. stocks in March 2009 as the Standard & Poor's 500 Index began an 86 per cent rally, said the low-yielding Treasuries now on issue should be avoided. ''This is a suicidal investment,'' he said in a phone interview from St Moritz, Switzerland. [8]
U.S. 10-year notes were yielding around 3.37 per cent in Asian trading yesterday. Those maturing in November 2020 carry an interest rate of 2.625 per cent security, and were trading at a price equivalent to around $US940 for a note with a $US1000 face value. Treasuries handed investors a 2.1 per cent loss this month, the most since December 2009, Bank of America Merrill Lynch indices show. [8]
The worst investment is in U.S. long-term bonds.'' The expectation is that as the U.S. economy recovers, interest rates will rise and the newer Treasury bonds will be offering higher interest rates, making them more attractive to investors and therefore selling at prices much higher than recent issues. [8] The Fed's plan was aimed at keeping interest rates low, thus propping up a shaky real estate market and unleashing the animal spirits of equity investors, which would create a wealth effect. The Fed's bond buying, said Gross, "raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up. Having arrived at its destination, the market then offers near zero percent returns and a picking of the creditor's pocket via inflation and negative real interest rates." Gross' declaration of defeat -- and the bond market's selloff confirms his view -- is a fresh reminder of all the strikes against bond investing. [9]
"Short- to medium-term maturities generally offer poor value," Tristan Hanson, strategist at wealth manager Ashburton told clients recently. He added, however, that longer-term 30-year paper was a good backstop against any renewal of concern about global growth. An orderly sell-off of bonds would not unduly worry investors and would fit with their scenario of rising "risk" assets. Were Treasuries and other benchmark bonds such as Bunds to sell off too sharply, however, significantly higher yields would unsettle investors and have the reverse impact on liquidity than that sought after by the Fed and various other authorities. [7]
LONDON: Financial markets enter 2011 with many investors persuaded that the world economy is on the mend and that riskier assets such as stocks are set to do well. Data from Reuters asset allocation polls and State Street's investor confidence index suggest investors are positioned for more stock gains and a continued move away from supposedly safer assets such as government bonds and low-yielding cash. [7] The Reuters polls, for example, showed equity holdings among leading investors at a 10-month high in December, while State Street's index for the month moved into bullish territory for the first time since March. The waning days of 2010 suggest investors will almost immediately have to face three major risks to their rather bullish mood. In no particular order, those are: China's trade, America's economy and the fate of billions of dollars pumped into benchmark government bonds. [7]
The yield on the 10-year note rose above 4 percent on April 5 for the first time since June 2009. It touched 2.33 percent on Oct. 8, the lowest level since January 2009. An index of Treasuries maturing in more than a year dropped 2.1 percent this month, according to figures compiled by Bloomberg and the European Federation of Financial Analysts Societies. [2] Treasury 10-year note yields will rise to 5 percent from yesterday'''s level of 3.349 percent, Faber said, without specifying a time frame. As bonds fall over the next decade, he said investors should buy precious metals, real estate or equities. [6] U.S. TREASURY securities, having made their biggest monthly loss in a year, are a ''suicidal investment'', according to investor Marc Faber, publisher of the Gloom, Boom and Doom report. [8] '''December was not good at all for Treasury investors amid policy changes, better economic data and the unwinding of so many long positions coming out of the quantitative-easing announcement,''' said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 18 primary dealers that trade directly with the Fed. '''Still, on the year, Treasuries are up, reflecting continuing uncertainty going forward.''' [2] '''There are still big questions about the sustainability of economic growth we'''ve seen that will have to be answered before yields move higher,''' said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 18 primary dealers that trade with the Fed. [1]
The five-year average is 2.09 percentage points. Pacific Investment Management Co., which runs the world'''s biggest bond fund, raised in December its forecast for U.S. economic growth to a range of 3 percent to 3.5 percent in 2011, versus its previous estimate of 2 percent to 2.5 percent. [1] Treasuries headed for the steepest monthly loss among the world'''s major bond markets on prospects U.S. reports on housing and employment will add to signs that economic growth will gain momentum. [4]
When the credit quality of U.S. Treasuries, of all things, is permanently impaired; when computerized technical glitches can cause plunging values; when the economies of sizable European nations become a house of cards; and in the broader economy more generally where land is more like quicksand -- people are attracted to values that are tangible. As Ken Fisher pointed out, economic woes of this kind are part of the normal human condition, and to that end those who invested confidently as he did in the U.S. stock market were happy campers this year. It should worry us that metals and mining were among the top gainers, and one hopes that innovation of the kind that has propelled tablets, smart phones and mobile web applications to 2010's biggest investment winners will be dominant themes in 2011. [9] Dec. 30 (Bloomberg) -- Eric Van Nostrand, U.S. interest-rate strategist at Credit Suisse Securities, Jonathan Lemco, senior analyst at Vanguard Group Inc., and John Brynjolfsson, chief investment officer at Armored Wolf LLC, talk about the outlook for U.S. Treasuries. They speak with Carol Massar on Bloomberg Television's "Street Smart." (This is an excerpt of the full interview. [6]
An index of global debt including Treasuries, German bunds, corporate bonds and mortgage securities returned 4.7 percent in 2010, the least in three years, according to the figures. [3] Reuters latest polls on expected bond yields found a median projection of 3.40 percent for U.S. Treasuries around a year from now. The yield has already revisited those levels this week. [7]
PRICEY TREASURIES A not-unrelated worry is the Treasury market, which has been hit by a combination of rising prices for riskier assets, the impact of tax cuts on the already large U.S. deficit, and a general feeling that bonds may be overbought. [7] Bonds advanced in the first three quarters as the U.S. economy threatened to slide into a recession. They trimmed gains in the last quarter as Bernanke implemented his plan to pump $600 billion into the banking system through June and President Barack Obama extended tax cuts for Americans. [3] U.S. bond funds had withdrawals of $8.62 billion in the week ended Dec. 15, the most in more than two years, according to Washington-based Investment Company Institute. [6] U.S. bond funds had withdrawals of $US8.62 billion in the week ended December 15, the most in more than two years, according to Washington-based Investment Company Institute, indicating the weight of money being moved out and into better-performing investments. [8]
The worst investment is in U.S. long-term bonds.''' On Nov. 3, the Fed said it would buy an additional $600 billion of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation. [6] '''People had better wait to buy''' Treasuries, said Tsutomu Komiya, who handles U.S. debt in Tokyo for Daiwa Asset Management Co., which oversees the equivalent of $105.8 billion and is part of Japan'''s second-biggest brokerage. [4] The 2010 increase was the smallest since 2007, when the debt in custody rose $70.3 billion to $1.226 trillion. U.S. debt advanced during the first three quarters on concern the economic recovery was stalling and nations such as Greece, Ireland and Portugal would default on their debt. [1]
The sovereign debt crisis in Europe was the first significant dampener in the 2010 bull market's march toward recovery. Worries about a host of problems, beginning with Greek bonds of diminishing credibility, then moving to Ireland's failed banks and a national budget ill equipped to bail them out, have tested Europe's incipient euro-based credit union. While Greece was the story in 2009, the Irish troubles roiled markets in April and May and worries about the soundness of Portugal, Spain, Italy and Belgium loom darkly behind debates of how the eurozone can adapt its economically unbalanced economic sphere. [9] ANZ has become the first of the big banks to buy back a tranche of foreign debt raised under the federal government's triple-A credit rating before the bonds were due to mature. [8]
Inflation is always crouching in the corner ready to take away whatever meager yields are being offered, and government fiscal and monetary policies are the key determinants of how your investment will perform. Credit quality matters -- and the bond market has judged Uncle Sam to be tinkering abusively with its national balance sheet. Whether you agree with Ken Fisher or Bill Gross, it's pretty clear why -- from Gross' perspective -- we're living in a "new normal." [9] '''The market is coming to the view that quantitative easing will be effective in stimulating the economy and inflation,''' said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. [2] '''We rallied as the recovery wasn'''t happening as quickly as people were anticipating initially,''' said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. [1]
Government bonds are likely to decline, said Faber, who publishes the Gloom, Boom and Doom report. [6]
The story was linked to the Fed's announcement of a second round of "quantitative easing" -- specifically, a plan to purchase $600 billion in Treasury bonds. [9] '''Treasuries will rally in January,''' said Zeal Yin, who helps oversee the equivalent of $51.4 billion as a bond investor at Shin Kong Life Insurance Co., Taiwan'''s second-largest life insurer. [3] Treasuries gained yesterday after the government'''s $29 billion auction of seven-year notes produced the highest demand from a group of investors including foreign central banks since June 2009. To contact the editor responsible for this story: Rocky Swift at [email protected]. [4] Severe weather has also disrupted travel in Europe. Treasuries handed investors a 2.1 percent loss this month, the most since December 2009, Bank of America Merrill Lynch indexes show. That trimmed the 2010 return to 5.5 percent, compared with a 3.7 percent loss in the previous year. [3] Treasuries were still headed for 5.5 percent annual returns after losing 3.7 percent in the previous year, according to a Bank of America Merrill Lynch index as of yesterday. [2]
Government debt returns for 2010 trailed the 9.5 percent reading for investment-grade corporate debt, according to Bank of America Merrill Lynch indexes. [1]
The debts of a large European economy like Spain are far harder for EU's money centers to cover, and the assets on the books of Spanish banks are no better and maybe worse than the CDOs that nearly took down the U.S. economy. [9] Of the three, the pace of recovery in the U.S. economy will be most clearly on display, with monthly U.S. jobs data due to be released on Jan 7. It may take on extra importance this month as much of the change in investors' appetite for risk has come about as signs have increased that the U.S. slowdown in mid-2010 was only temporary. [7] The U.S. economy expanded at a 2.6 percent annual rate in the third quarter, the Commerce Department reported Dec. 22. [1] Dec. 9 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, discusses the outlook for the U.S. economy. [6]
Any sign that the U.S. economy is not recovering as thought could cause an early reversal. [7]
Year-end balancing of portfolios supported U.S. debt prices today. The duration of Barclays Plc'''s U.S. Treasury Index will rise by 0.9 year this month, matching the historical high for any December, according to a report from the primary dealer released this week. [2] The extra yield investors demand to hold 10-year notes over 2-year debt was at 2.70 percentage points after touching 2.89 percentage points on Dec. 15, the widest since Feb. 23. [1] The yield on the 10-year note dropped seven basis points, or 0.07 percentage point, to 3.30 percent at 1:59 p.m. in New York, according to BGCantor Market Data. [2] The yield on the benchmark 10-year note advanced 0.02 percentage point to 3.37 percent at 4:28 p.m. in New York, according to BGCantor Market Data. [6]
The yield on the benchmark 10-year note dropped 54 basis points, or 0.54 percentage point, to 3.29 percent, according to Bloomberg generic data. [1]
The two-year note yield fell five basis points to 0.59 percent after touching the six-month high of 0.75 percent on Dec. 28. [2]
The 10-year note yield increased 50 basis points in December, the biggest monthly gain since rising 64 basis points in December 2009. [2]
The 10-year note yield will decrease to 3.11 percent by March 31, according to a Bloomberg survey of analysts, with the most recent forecasts given the heaviest weightings. [1] The index of pending home sales rose 0.8 percent in November after jumping a record 10 percent in October, economists surveyed by Bloomberg News forecast the National Association of Realtors will report today. Other data may show initial jobless claims dropped last week, a separate survey showed before today'''s data. [4] Ten-year rates will drop to 3.11 by March 31 and then advance to 3.52 percent by the close of 2011, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. [3]
Treasuries due in more than a year handed investors a 2.1 percent loss in December, according to figures compiled by Bloomberg and the European Federation of Financial Analysts Societies. It is the worst performance of 26 sovereign indexes. [4] Lesson : Investors in Treasuries, who have always had to worry about inflation risk, duration risk and taxes, could always rely on the absence of political risk; the full faith and credit of the United States Treasury was something the whole world banked on. [9] Treasuries rose as the 9.8 percent unemployment rate, record low inflation and Europe '''s deepening sovereign-debt crisis stoked demand for safety. [1] The S&P; 500 gained 3 percent. He was less prescient in March 2007, when he said the S&P; 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P; 500 then climbed 10 percent to its record of 1,565.15 seven months later, and ended the year up 3.5 percent. [6]
The December losses are likely to have eroded 2010's gain, driven by Federal Reserve chairman Ben Bernanke's unprecedented efforts to spur economic growth by printing money, pushing investors to seek alternative, higher-yielding assets. [8] Financial markets enter 2011 with many investors persuaded that the world economy is on the mend and that riskier assets such as stocks are set to do well. [7] Dec. 29 (Bloomberg) -- Donald Yacktman, president and chief investment officer of Yacktman Asset Management, talks about investment opportunities in large-capitalization stocks. [6]
It'''s the first time since 2005 that stocks, bonds, commodities and the dollar have all risen for the year. [2] Primary dealers held a short position on Treasuries for the first time since February, the Fed reported yesterday. [2]
'''Over time, interest rates on U.S. Treasuries will go up. [2] Investors will gradually understand that the Federal Reserve wants to have negative real interest rates. [6]
A single, $4.1 billion computer-initiated trade seems to have triggered the precipitous decline, and there has been much gnashing of teeth about high-frequency computerized trading and even the role played by the proliferation of ETFs in less liquid areas of the market. Should investors fear financial Armageddon -- or buy like crazy -- if another apparent flash crash occurs? Probably both reactions, in good measure and at different times, are called for. Sometimes bad things occur rather unexpectedly and their consequences also surprise. [9] U.S. stocks may have enjoyed the strongest rally since the March 2009 nadir in 55 years but investors can't take too much for granted. [8] U.S. equities, for example, have recovered to the extent that the over-the-counter Nasdaq index has actually outperformed much-touted emerging market stocks, as measured by MSCI. But some data was disappointing in the past week, notably consumer sentiment and housing, which, with jobs, go to the heart of future confidence and spending. [7] The MSCI All Country World Index of stocks gained 13 percent after accounting for reinvested dividends. To contact the editor responsible for this story: Rocky Swift at [email protected]. [3]
After bottoming in December 2008, the 10-year Treasury yield rose as high as 3.9859 percent in April on government measures to stimulate the economy. [6] U.S. 10-year rates dropped two basis points to 3.35 percent as of 8:10 a.m. in London, according to BGCantor Market Data. [3] U.S. 10-year notes yielded 3.35 percent as of 12:20 p.m. in Tokyo, according to BGCantor Market Data. [4]
The Australian dollar reached the highest since the currency was freely floated in 1983 as U.S. data spurred speculation global growth is gathering momentum. [8]
There's something to the old idea of investing in a broadly diversified portfolio including growth stocks, dividend-paying equities and commodities, and turning attention to friends, families and hobbies that bring joy to life rather than worrying about the price of rhodium. [9]
Be wary of poor credit quality among European debt securities, and spread your risk far and wide among equities. [9] As bond vigilantes, gold bugs and the Chinese now constantly remind us, America and credit quality are no longer synonymous. Where once our word was our bond, our bonds are no longer expected to be worth tomorrow what they are today. [9] There is no good news out there -- or prospect of any -- for bond investors. [9]
SOURCES
1. Treasuries Rally on 9.8% Unemployment Rate, Low Inflation, European Crisis - Bloomberg
2. Treasuries Have Biggest Monthly Drop of 2010 on Economic View - Bloomberg
3. Treasuries Gain on Speculation Snow Will Slow Economic Growth - Bloomberg
4. Treasuries Set for Biggest Monthly Loss Among World's Bonds on Growth Data - Bloomberg
5. CORRECT (12/30): S Korea To Sell KRW82.4T Treasuries In 2011 - WSJ.com
6. Faber Says Long-Term U.S. Treasuries Are `Suicidal' Investment - Bloomberg
7. Global markets outlook: Three risks to start 2011 - The Economic Times
8. Long-term US bonds'suicidal'
9. Top Five Portfolio News Stories of 2010: AdvisorOne | Advisor One
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