U.S. yields at almost 2-month lows as Fed may buy more bonds

Bullish Shift

Treasuries investors increased bullish positions to the most in almost four months in the week ending yesterday, according to a survey by JPMorgan Chase & Co.

The proportion of net longs was at 11 percentage points, up from four percentage point, according to the survey.

The percent of outright longs rose to 26 percent, from 17 percent the previous week, the survey said. The percent of outright shorts, or bets the securities will fall in value, rose to 15 percent, from 13 percent, according to the survey. Investors cut neutral bets to 59 from 70, which was the highest level since August.

Previous budget negotiations that resulted in an extension of the Bush tax cuts were a “one-time proposition,” Obama told reporters today at a White House press conference. “We were still very much in the early parts of recovering” from recession.

The Congressional Budget Office has forecast that the $607 billion of automatic tax increases and spending cuts set to take effect in January unless a budget agreement is reached would push the economy into a recession next year.

Higher Yields

U.S. government securities retreated from the most expensive levels in almost six weeks, reached yesterday. The 10- year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.92 percent. It touched negative 0.94 percent yesterday, the most costly since Oct. 3. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average this year is negative 0.76 percent.

Treasury 10-year yields will climb to 2.01 percent by June 30, according to a Bloomberg survey of financial companies with the most recent projections given the heaviest weightings.

Retail sales in the U.S. fell in October for the first time in four months, influenced by the effects of superstorm Sandy, which hurt receipts for some and helped for others.

The 0.3 percent drop followed a 1.3 percent increase in September that was larger than previously reported, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a drop of 0.2 percent. The Commerce Department said it was able to collect information from the storm-affected area, even as it was not able to quantify its impact.

Price Levels

Wholesale prices in the U.S. unexpectedly fell in October for the first time in five months as energy and vehicle costs dropped. The 0.2 percent decline in the producer price index came after a 1.1 percent increase the prior month, Labor Department figures showed. The median estimate in a Bloomberg survey of 73 economists called for a 0.2 percent rise. Excluding volatile food and energy, the so-called core measure decreased 0.2 percent, the first drop since November 2010.

The difference between yields on 10-year notes and similar- maturity inflation-linked bonds, a gauge of expectations for consumer prices, was at 2.4 percentage points, the narrowest since Sept. 13.

Bloomberg News

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