June 15 (Bloomberg) -- Treasuries rose, set for a weekly gain, amid speculation a slowing U.S. economy will prompt the Federal Reserve to add stimulus measures, stoking investor demand for the safety.
Yields dropped as reports showed manufacturing in the New York region expanded in June at the slowest pace in seven months and U.S. industrial production unexpectedly fell. Thirty-year yields declined to a one-week low as Greeks prepare to vote in two days after a ballot in May failed to produce a government. Central banks of major economies are preparing for coordinated action to provide liquidity if needed, Reuters reported.
“It was a pretty soft reading from the Empire manufacturing index,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which oversees $12 billion in fixed-income assets. “Although it covers one region, the market is very sensitive to negative news right now. There is an overriding factor: It’s the last day to get your buying in ahead of the Greek elections. It’s a frenzy of last-minute protection.”
The 10-year yield dropped six basis points, or 0.06 percentage point, to 1.58 percent at 9:33 a.m. New York time, according to Bloomberg Bond Trader data. The 1.75 percent note due in May 2022 gained 18/32, or $5.63 per $1,000 face amount, to 101 18/32. The 10-year rate, which fell to a record 1.44 percent on June 1, ended last week at 1.64 percent.
Thirty-year bond yields fell six basis points to 2.68 percent. The two-year yield slipped one basis point to 0.28 percent.
Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets. Group of 20 policy makers are scheduled to meet on June 18-19. The Fed meets June 19-20.
Empire Manufacturing
The Fed Bank of New York’s general economic index dropped to 2.3 this month, less than the lowest forecast of economists surveyed by Bloomberg News and down from 17.1 in May. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October.
Growth in U.S. industrial production decreased 0.1 percent last month, after a revised 1 percent gain in April, according to the Fed in Washington. Manufacturing, which makes up about 75 percent of total production, dropped 0.4 percent last month.
Ten-year notes outperformed similar-maturity German bunds as investors favored securities from outside the euro area. German 10-year bund yields were little changed at 1.48 percent, leaving the yield difference, or spread, with Treasuries two basis points narrower at 14 basis points. That compares with a spread of 31 basis points at the end of last week and this year’s high of 49 basis points on April 3.
Greece’s June 17 election will turn on whether voters in the nation, which is in a fifth year of recession, accept open- ended austerity to stay in the euro or reject the conditions of a bailout and risk the turmoil of becoming the first to exit the 17-member currency.
German yields have advanced from record lows reached this month as the euro-region’s deepening crisis fueled concern the currency bloc’s biggest economy will be left picking up a mounting tab.
“We’ve had some Treasury outperformance over bunds recently on worries that Germany might have to take on more liabilities,” said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “People want to stay on the sidelines until they know the outcome of this weekend’s elections.”
Coordinated Action
Central banks of major economies are preparing for coordinated action to provide liquidity if needed, Reuters reported yesterday, citing officials linked to the Group of 20 nations. G-20 policy makers are scheduled to meet on June 18-19.
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from December 2008 to June 2011, seeking to cap borrowing costs and stimulate the economy. The central bank plans to buy as much as $1.5 billion of Treasury Inflation Protected Securities due from July 2018 to February 2042 today under its program known as Operation Twist, which aims to replace holdings of shorter-term securities with longer- term bonds, according to the Fed Bank of New York’s website.
The U.S. sold $66 billion in notes and bonds this week, with new auction records set on the 10-year yield and the 30- year bond. The bonds sold yesterday yielded a record low of 2.72 percent, versus 3.09 percent at an auction on May 10. The government sold $32 billion in three-year securities on June 12, and $21 billion of 10-year notes two days ago at a record-low yield of 1.622 percent.
CPI Fell
The U.S. consumer-price index declined 0.3 percent in May, the biggest drop since December 2008, after no change the prior month, the Labor Department reported yesterday.
The gap in yields between 10-year notes and Treasury Inflation Protected Securities, which represents traders’ expectations for inflation over the life of the debt, was 2.11 percentage points, down from a 2012 high of 2.45 percentage points in March.
Treasuries have returned 3.1 percent this quarter through yesterday, Bank of America Merrill Lynch data showed. The MSCI All Country World Index of shares handed investors an 8.5 percent loss including reinvested dividends in the same period.
