Treasuries advanced for a sixth time in seven days as investors sought the safest assets on speculation a disagreement among U.S. political leaders over the nation’s debt ceiling will derail the economy.
U.S. government debt extended last week’s advance as a Bloomberg News report that Japan may consider a fund to buy as much as 50 trillion yen ($558 billion) of foreign securities drove the yen to the weakest level versus the dollar in 2 1/2 years. Benchmark 10-year yields dropped to the lowest in a week as Senate Democratic leaders urged President Barack Obama to take any steps he can to pay U.S. financial obligations if Republicans don’t support a debt-limit increase that Democrats deem acceptable. The U.S. reached the debt ceiling on Dec. 31.
“The debt-ceiling agreement will also weigh down economic growth,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We could continue to move higher from here. It’s the weakness in the yen -- it’s the idea that they will be buying Treasury assets, supporting the Treasury market. It’s sustainable.”
The benchmark 10-year yield dropped three basis points, or 0.03 percentage point, to 1.84 percent at 9:21 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 rose 7/32, or $2.19 per $1,000 face amount, to 98 1/32. The yield touched 1.83 percent, the lowest level since Jan. 3.
“The next stop could be 1.75 percent,” said Milstein.
Without an extension to the spending limit, the Treasury will exhaust measures to finance the government as early as mid- February, according to the Congressional Budget Office.
Obama “must be willing to take any lawful steps to ensure that America does not break its promises and trigger a global economic crisis -- without congressional approval, if necessary,” Senate Majority Leader Harry Reid and three other top Democrats wrote in a letter to the president on Jan. 11.
Amid Republican opposition to raising the debt ceiling without spending cuts, some Democrats have proposed invoking the Constitution’s 14th amendment and minting a platinum coin with a face value of $1 trillion with which the government can pay its bills.
The Federal Reserve plans to buy as much as $1.75 billion of Treasuries maturing from February 2036 to November 2042, according to the website of the Fed Bank of New York, as part of the $85 billion of government and mortgage debt it is buying each month to spur the economy by putting downward pressure on interest rates.
Treasuries also rallied as economists said U.S. reports tomorrow will show retail sales rose at a slower pace in December and producer prices declined from the previous month.
Inflation may at times run modestly above the Fed’s 2 percent target, Fed Bank of Chicago President Charles Evans said today in Hong Kong.
The difference between yields on 10-year notes and similar- maturity TIPS, a gauge of expectations for consumer prices over the life of the debt, was 2.51 percentage points. The average over the past decade is 2.19 percentage points.
Fed Chairman Ben S. Bernanke is scheduled to speak at 4 p.m. today in Ann Arbor, Michigan.
U.S. consumer prices were unchanged in December from the month before, after falling in November, according to a Bloomberg News survey before the report on Jan. 16.
The yen fell to 89.67 per dollar, the weakest level since June 2010, on bets Japanese Prime Minister Shinzo Abe will select a central bank chief who will expand monetary easing, accelerating the currency’s decline.
Abe’s Liberal Democratic Party pledged to consider the foreign-securities fund, according to Nomura Securities Co. and Kazumasa Iwata, a former Bank of Japan deputy governor. JPMorgan Securities Japan Co. says the total may be as much 100 trillion yen. The purchases would further weaken a currency that has depreciated 12 percent in four months as the nation suffers through its third recession since 2008.
Treasuries have handed investors a loss of 0.5 percent this year through Jan. 11, according to indexes compiled by Bank of America Merrill Lynch. The gained 2.2 percent last year, the smallest annual return since 2009.