Subprime issues stoke demand for Treasuries
Subprime issues stoke demand for Treasuries
A Merrill Lynch & Co. index puts U.S. Treasury returns at 8.7%, their best year since 2002, fueled by investors fleeing from subprime issues to the relative safety of government debt. "U.S. bonds have been boosted by a flight to quality since the subprime crisis erupted," said Stephen Lewis of Insinger de Beaufort in London. "Two-year yields are telling you the market's reluctant to stray from what's perceived as being the safest assets." SIFMA has recommended trading of Treasuries close at 2 p.m. New York time and remain closed for New Year's Day in the U.S., the U.K. and Japan.
Treasuries Set for Yearly Gain; Reports May Show Slowing Growth
U.S. Treasuries are set for the best year since 2002 before reports this week that may show the housing recession is slowing economic growth.
Treasuries returned 8.7 percent, according to a Merrill Lynch & Co. index, as losses tied to subprime mortgages stoked demand for the safety of government debt. Ten-year yields are almost 1 percentage point more than two-year rates, signaling investors have sought shorter maturities as the Federal Reserve reduced interest rates. In March, they yielded about the same.
``U.S. bonds have been boosted by a flight to quality since the subprime crisis erupted,'' said Stephen Lewis, chief economist at Insinger de Beaufort in London. ``Two-year yields are telling you the market's reluctant to stray from what's perceived as being the safest assets.''
Two-year Treasury yields fell 2 basis points to 3.08 percent as of 9:33 a.m. in London, according to bond broker Cantor Fitzgerald LP. The price of the 3 1/4 percent security due December 2009 gained 1/32, or 31 cents per $1,000 face amount, to 100 10/32. The yield on the 10-year note was little changed at 4.07 percent.
The Securities Industry and Financial Markets Association recommended trading of Treasuries close in Japan for a holiday today. It also recommended trading stop at 2 p.m. New York time and stay shut tomorrow in Japan, the U.K. and the U.S. for New Year's Day.
Economic Reports
Two-year notes added to two weeks of gains before a National Association of Realtors report today that may show existing-home sales matched a record low in November. The Institute for Supply Management's factory index on Jan. 2 will show manufacturing almost stalled this month, according to surveys of economists by Bloomberg News.
Employers hired 70,000 workers in December, slowing from 94,000 last month, according to the median forecast in a Bloomberg survey before a Labor Department report Jan. 4.
Ninety-two percent of money managers surveyed by Ried, Thunberg & Co., a research unit of ICAP Plc, the world's largest inter-bank broker, say 2007 will be remembered as the year of the global credit crunch.
Subprime-mortgage defaults led to at least $80 billion in writedowns and losses at the biggest securities companies and banks, including Citigroup Inc. and UBS AG. The Fed, led by Chairman Ben S. Bernanke, reduced the target rate for overnight loans between banks by 1 percentage point this year to 4.25 percent. The Fed and the European Central Bank added funds to the financial markets to try to revive corporate debt trading.
2008 Outlook
Ried, Thunberg's index measuring attitudes toward Treasuries through the end of March held at 51 for the week ended Dec. 28. A number above 50 indicates investors expect prices to rise. Its index for the end of June declined to 50, which is neutral, from 52. The 24 investors surveyed by the Jersey City, New Jersey, company manage a combined $1.21 trillion.
Bloomberg surveys of economists show they are less optimistic on Treasuries for 2008. The 10-year yield will gain to 4.48 percent while the two-year rate will climb to 3.76 percent by year-end, the surveys show, with the most recent forecasts given the heaviest weightings.
The so-called TED spread, the difference between what the U.S. government and banks pay for three-month loans, indicates lenders are becoming more willing to do business. The gap narrowed to 1.58 percentage points today, from this year's high of 2.4 percentage points set Aug. 20.
The three-month London interbank offered rate, set Dec. 28, was 4.73 percentage points, declining 1 percentage point from 2007's high on Sept. 7.
Traders expect the world's largest economy to slow enough to lead the Fed to cut interest rates at least twice in 2008, judging by futures contracts on the Chicago Board of Trade. The contracts show there's a 90 percent chance policy makers will reduce the target rate by a quarter percentage point to 4 percent at their Jan. 30 meeting, and that the odds of a further cut on March 18 are 58 percent.
BizAnalyst Network
The business and career development network for financial services professionals
Get Advice | Get Funding | Join Our Network
posted by Victor Lloyd Smith @ 2:00 PM
0 Comments:
Post a Comment
<< Home