The report “looks fairly strong -- it bodes well for the inflation side of the story,” said Aaron Kohli, an interest- rate strategist in New York at BNP Paribas SA, one of 21 primary dealers obligated to trade with the Federal Reserve. “Break- evens are a good buy at this point.”
Bernanke said on July 10 that the U.S. needs “highly accommodative monetary policy for the foreseeable future,” after last month saying the central bank may begin to slow its $85 billion in monthly bond purchases this year and end them in 2014 if economic growth meets policy makers’ goals.
Industrial production rose in June by the most in four months, with output at factories, mines and utilities climbing 0.3% after being little changed in May, a Fed report showed today in Washington. The gain matched the median forecast of 86 economists surveyed by Bloomberg. Manufacturing, which makes up 75% of total output, increased more than projected.
The U.S. central bank is scheduled to buy as much as $1.75 billion of government securities due from February 2036 to May 2043, according to the New York Fed’s website.
Foreign sales of U.S. long-term securities rose in May as private investors overseas sold a record amount of Treasuries, a government report showed.
The net long-term portfolio investment outflow for the month was $27.2 billion after a revised decline of $21.8 billion the prior month, the Treasury Department said in a statement today in Washington. U.S. residents bought a net $27.2 billion in foreign long-term securities, while investors abroad were net sellers of $29 billion of Treasury bonds and notes, the report showed.
China’s holdings of Treasuries rose $25.2 billion to a record $1.316 trillion, according to the Treasury. Japan, the second-largest holder, lowered its holdings to $1.11 trillion.
Pimco’s Gross raised the proportion of U.S. government debt in the $268 billion Total Return Fund to 38% from 37% in May, according to data on the company’s website. Newport Beach, California-based Pimco doesn’t comment directly on monthly changes in holdings or specific types of securities within a market sector such as the percentage of Treasury Inflation Protected Securities in the U.S. grouping.
Gross had been buying TIPS on a bet that money printing by the world’s central banks would push up consumer prices, making Treasuries the largest portion of the fund. When yields began to rise in May on expectations the Fed would slow its bond-buying program, inflation expectations didn’t, amplifying the losses on inflation-hedged U.S. debt.
The Total Return Fund, the world’s largest mutual fund, fell 4.7% in May and June, prompting $9.9 billion in withdrawals last month, the most on record.
The Treasury is contacting primary dealers as it seeks ways to support the TIPS market. The advice is being sought after direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 0.4% of debt offered in a sale of 30-year TIPS in June. That was the least since 2010, versus 14% in February and an average of 17.7% at the past nine auctions.