Bernanke & Obama Are Two Fools Damaging The Economy Beyond Repair
Protect Your Family’s Future By Buying Silver And Gold Coins
By Susanne Walker and Lukanyo Mnyanda
March 13 (Bloomberg) — Treasuries fell for the first time in three days as China’s Premier Wen Jiabao said he’s concerned about the safety of U.S. government debt and stock gains sapped demand for the relative safety of government debt.
Ten-year notes headed for a weekly decline as Japan and China signaled new measures to boost their economies and the Standard & Poor’s 500 Index was poised for its biggest weekly increase since November.
“As people look at equities and corporate bonds, they are saying that they maybe don’t need to have that kind of money in Treasuries,” said Andrew Brenner, co-head of structured products in New York at MF Global Ltd. “The comments from the Chinese premier let people know that the largest holder of Treasuries is concerned about adding to it. That gets people a little nervous.”
The yield on the benchmark 10-year note rose five basis points, or 0.05 percentage point, to 2.91 percent at 10:32 a.m. in New York, up from 2.86 percent March 6, according to BGCantor Market Data. The 2.75 percent security due February 2019 fell 13/32, or $4.06 per $1,000 face amount, to 98 21/32.
Rates on three-month bills were unchanged at 0.19 percent after falling three basis points yesterday. The rate turned negative in December as investors sought the safest assets on concern the recession is deepening.
‘Where Else?’
China, the U.S. government’s largest creditor, is asking “the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” Wen said today in Beijing at a press briefing after the annual meeting of the legislature. China held $696 billion of U.S. government securities at the end of last year, 46 percent more than 12 months earlier.
“China should be concerned, in that they hold roughly a third of their almost $2 trillion in FX reserves in U.S. Treasuries,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc. one of 16 primary dealers that trade with the Federal Reserve, in an interview with Bloomberg Television. “As a Chinese official put it a couple weeks ago, and I’ll paraphrase, he said, where else will we go?”
Japan’s finance Minister Kaoru Yosano said the government will inject 121 billion yen ($1.2 billion) into three regional banks. The world’s second-largest economy shrank an annualized 12.1 percent in the three months ended Dec. 31, the sharpest contraction since 1974, the Cabinet Office said yesterday.
Record Sales
The Standard & Poor’s 500 Index rose 0.9 percent after Bank of America Corp. yesterday said it was profitable in January and February, joining JPMorgan Chase & Co. and Citigroup Inc. in suggesting the nation’s biggest banks are recovering from a dismal 20008.
Treasuries handed investors a loss of 2.9 percent in 2009, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. U.S. debt dropped this year as President Barack Obama’s administration sold record amounts of debt to fund a $787 billion economic stimulus package and service a budget deficit that may reach an all-time high of $1.75 trillion.
The Treasury sold $63 billion of notes and bonds this week. Goldman Sachs Group Inc. estimates the nation will almost triple debt sales this year to a record $2.5 trillion.
U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and their Group of 20 counterparts will discuss remedies for a worsening economic outlook at a meeting of finance ministers near London starting today.
Yield Curve
The difference between yields on two- and 10-year notes narrowed to 1.91 percentage points from 1.92 percentage points at the end of last week and 1.44 percentage points Dec. 31. The spread may widen as longer-term bond issuance increases while target interest rates remain low, according to Peter Jolly, head of market research at National Australia Bank Ltd.’s investment- banking unit in Sydney.
“The government has to issue a lot of bonds for the Obama fiscal-stimulus plan,” Jolly said. “At some point we’ll see greater market indigestion, which means they’ll have to offer higher long-term yields to investors to entice them. At the same time the Fed will hold a low federal funds rate so shorter yields will stay low. We’ll see a sizeable re-steepening.”
Ten-year yields will rise to 3 percent at the end of this month and reach 3.2 percent by year-end, Jolly said.
The Reuters/University of Michigan preliminary index of consumer sentiment rose to 56.6 from 56.3 in February, holding near a 28-year low amid mounting job losses and a deepening recession.
The U.S. trade deficit narrowed in January by 9.7 percent to to $36 billion, the Commerce Department said today in Washington, as Americans cut purchases of everything from OPEC oil to Japanese automobiles.
Libor-OIS Spread
Money-market rates show short-term borrowing costs are still increasing as banks hoard cash after almost $1.2 trillion of writedowns and losses since the start of 2007.
The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, rose to 114 basis points, near the widest level since Jan. 9. The spread averaged 27 basis points from 2002 through 2006.
The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans in dollars is 1.32, near the highest since Jan. 8, and up from this year’s low of 1.08 percent on Jan. 14. The Libor-OIS spread, a measure of bank reluctance to lend, is near its widest since Jan. 9.
To contact the reporters on this story: Susanne Walker in New York at -212-617-1719 or swalker33@bloomberg.net. To contact the reporter on this story: Lukanyo Mnyanda in London at -20-7330-7273 or lmnyanda@bloomberg.net
Of course, the two go together. If China can continue to grow, she will demand more and more commodities. Prices for wheat, iron, tin, coal – just about everything – will rise as China raises living standards. Or not.
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Prices for wheat, iron, tin, coal – just about everything – will rise as China raises living standards. Or not. China doesn’t even need to grow wealthier in order to use more commodities.
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