Treasuries drop, snap three-day gain, as China factories expand

After Storm

Treasuries rose yesterday as trading resumed following the market closure on Oct. 30 for Hurricane Sandy. The storm may reduce output in the world’s largest economy by $25 billion in the fourth quarter, according to Gregory Daco, a U.S. economist at IHS Global Insight. He said that may cut the fourth-quarter pace of growth to a range of 1 percent to 1.5 percent, from the company’s earlier estimate of 1.6 percent.

Treasury yields “should stay low” as Fed stimulus is failing to spur companies to invest in production, Pacific Investment Management Co.’s Bill Gross wrote in a monthly investment outlook published on the company’s website.

“Financial repression and quantitative easing were supposed to be the extraordinary monetary policies that kick started the real economy,” but they haven’t succeeded, wrote Gross, who runs the world’s biggest bond fund.

Financial markets have remained “remarkably calm” even with signs of slower global growth, an uncertain U.S. election and sovereign-debt crisis in the euro area, Paulsen at Wells Capital, wrote in a report the company distributed yesterday.

“In the past this has led to a much more ‘risk-on’ friendly investment climate where stock returns improve significantly,” he said.

The Treasury 10-year yield will rise to 2.04 percent by June 30, according to a Bloomberg survey of economists with the most recent projections given the heaviest weightings. The yield dropped to a record 1.379 percent on July 25.

Bloomberg News

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