Treasuries gain as yields draw demand before Fed buys bonds

Economic Data

New-home starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008.

Jobless claims climbed by 2,000 to 366,000 in the week ended Aug. 11, Labor Department figures showed today in Washington. The median forecast of 45 economists surveyed by Bloomberg News called for an increase to 365,000.

The U.S. added 163,000 jobs last month, a government report showed on Aug. 3, more than the 100,000 projected by analysts. Retail sales rose 0.8 percent, the biggest increase since February, Commerce Department figures showed Aug. 14. Industrial production increased 0.6 percent in July from June, the Federal Reserve reported yesterday.

Treasuries have handed investors a 1.4 percent loss this month, according to Bank of America Merrill Lynch data. An index of sovereign bonds around the world dropped 0.6 percent, the data show.

The MSCI All-Country World Index of stocks returned 2.4 percent including reinvested dividends, according to data compiled by Bloomberg.

Fed Targets

The U.S. central bank has held its target for overnight lending in a range of zero to 0.25 percent since 2008 and plans to keep it there at least through late 2014 to stimulate the world’s biggest economy. The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs. It’s now in the process of swapping shorter-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on long-term borrowing costs.

An index of Treasury Inflation-Protected Securities has declined 2.1 percent this month, based on the Bank of America Merrill Lynch figures. The U.S. consumer-price index rose 1.4 percent in July from the year before, the smallest increase since November 2010, Labor Department data yesterday showed.

The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices during the life of the debt, was 2.27 percentage points. The average during the past decade is 2.15 percentage points.

Bloomberg News

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