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Treasuries Rise Most in Six Weeks as Global Stocks Extend Slump
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Treasuries Rise Most in Six Weeks as Global Stocks Extend Slump
By Wes Goodman
Jan. 22 (Bloomberg) -- Treasury notes rose the most in six weeks as plunging global stocks drove investors to the relative safety of government debt.
Two-year yields declined to the lowest since April 2004 as shares extended a slump that has wiped $5 trillion of value from the world's stock markets in 2008. Japanese bonds gained for a third day, and Australian 10-year government notes had their biggest rally in almost three weeks. The risk of Australian companies defaulting on their debt climbed to a record.
``Bonds are a safe harbor,'' said Satoshi Okumoto, who helps oversee the equivalent of $50.4 billion in Tokyo at Fukoku Mutual Life Insurance Co. ``Money is flowing into the market. It's a good idea to avoid risk.''
The two-year yield fell 18 basis points to 2.17 percent as of 12 p.m. in Singapore, according to bond broker Cantor Fitzgerald LP. The price of the 3 1/4 percent security due in December 2009 rose 11/32, or $3.44 per $1,000 face amount, to 102 1/32. A basis point is 0.01 percentage point.
Ten-year yields declined 9 basis points to 3.54 percent. They may fall to 3 percent this quarter, Okumoto said.
Notes due in 2009 are too expensive to buy now, he said. Their yields were more than 2 percentage points less than the Federal Reserve's target for overnight loans between banks, the biggest deficit since 1981.
Two-year Treasuries yielded 1.38 percentage points less than 10-year notes, the widest spread since November 2004, as traders increased bets the Fed will trim borrowing costs on Jan. 30.
Unscheduled Fed Meeting?
Futures contracts on the Chicago Board of Trade show there's almost a 75 percent chance the Fed will cut its target rate to 3.50 percent from 4.25 percent at its Jan. 30 meeting. The remaining odds are for a half-percentage-point cut.
The tumble in stocks triggered speculation that Fed policy makers will meet to discuss cutting rates before the Jan. 30 policy meeting, Andrew Brenner, co-head of structured products in New York at MF Global Ltd., said in an e-mail.
``In the past we might have dismissed the talk of a Fed meeting, but with the meltdown felt globally, we would not be surprised for a conference call to discuss options,'' he said.
The MSCI World Index's 3 percent decline yesterday, the steepest since 2002, left benchmarks in France, Mexico, Italy and 35 other countries at least 20 percent below their highs in the last year. The Standard & Poor's 500 Index may post its biggest decline since 2001 when the U.S. market resumes trading today after the Martin Luther King Day holiday, futures showed.
Fed Chairman Ben S. Bernanke cut the target rate by 1 percentage point last year to spur the economy.
Inflation Bets
Bond investors banking on a U.S. recession to sustain the biggest rally in Treasuries since 2002 may find that the central bank head has already laid the groundwork for an economic rebound.
The cost of borrowing dollars for three months fell below the Fed's benchmark rate last week for the first time since June 2003. The amount of commercial paper backed by assets including mortgages and credit-card receivables expanded for a third week after a five-month contraction, adding to speculation that central bankers are breaking the lending gridlock sparked by the collapse of the U.S. subprime mortgage market.
Slowing growth has led traders to scale back bets that inflation will quicken. The extra yield that 10-year notes offer over same-maturity Treasury Inflation Protected Securities narrowed to 2.13 percentage points, near the smallest differential since October 2003.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net .
By Wes Goodman
Jan. 22 (Bloomberg) -- Treasury notes rose the most in six weeks as plunging global stocks drove investors to the relative safety of government debt.
Two-year yields declined to the lowest since April 2004 as shares extended a slump that has wiped $5 trillion of value from the world's stock markets in 2008. Japanese bonds gained for a third day, and Australian 10-year government notes had their biggest rally in almost three weeks. The risk of Australian companies defaulting on their debt climbed to a record.
``Bonds are a safe harbor,'' said Satoshi Okumoto, who helps oversee the equivalent of $50.4 billion in Tokyo at Fukoku Mutual Life Insurance Co. ``Money is flowing into the market. It's a good idea to avoid risk.''
The two-year yield fell 18 basis points to 2.17 percent as of 12 p.m. in Singapore, according to bond broker Cantor Fitzgerald LP. The price of the 3 1/4 percent security due in December 2009 rose 11/32, or $3.44 per $1,000 face amount, to 102 1/32. A basis point is 0.01 percentage point.
Ten-year yields declined 9 basis points to 3.54 percent. They may fall to 3 percent this quarter, Okumoto said.
Notes due in 2009 are too expensive to buy now, he said. Their yields were more than 2 percentage points less than the Federal Reserve's target for overnight loans between banks, the biggest deficit since 1981.
Two-year Treasuries yielded 1.38 percentage points less than 10-year notes, the widest spread since November 2004, as traders increased bets the Fed will trim borrowing costs on Jan. 30.
Unscheduled Fed Meeting?
Futures contracts on the Chicago Board of Trade show there's almost a 75 percent chance the Fed will cut its target rate to 3.50 percent from 4.25 percent at its Jan. 30 meeting. The remaining odds are for a half-percentage-point cut.
The tumble in stocks triggered speculation that Fed policy makers will meet to discuss cutting rates before the Jan. 30 policy meeting, Andrew Brenner, co-head of structured products in New York at MF Global Ltd., said in an e-mail.
``In the past we might have dismissed the talk of a Fed meeting, but with the meltdown felt globally, we would not be surprised for a conference call to discuss options,'' he said.
The MSCI World Index's 3 percent decline yesterday, the steepest since 2002, left benchmarks in France, Mexico, Italy and 35 other countries at least 20 percent below their highs in the last year. The Standard & Poor's 500 Index may post its biggest decline since 2001 when the U.S. market resumes trading today after the Martin Luther King Day holiday, futures showed.
Fed Chairman Ben S. Bernanke cut the target rate by 1 percentage point last year to spur the economy.
Inflation Bets
Bond investors banking on a U.S. recession to sustain the biggest rally in Treasuries since 2002 may find that the central bank head has already laid the groundwork for an economic rebound.
The cost of borrowing dollars for three months fell below the Fed's benchmark rate last week for the first time since June 2003. The amount of commercial paper backed by assets including mortgages and credit-card receivables expanded for a third week after a five-month contraction, adding to speculation that central bankers are breaking the lending gridlock sparked by the collapse of the U.S. subprime mortgage market.
Slowing growth has led traders to scale back bets that inflation will quicken. The extra yield that 10-year notes offer over same-maturity Treasury Inflation Protected Securities narrowed to 2.13 percentage points, near the smallest differential since October 2003.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net .
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