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Treasury 10-Year Notes Little Changed as Factory Orders Forecast to Rise

The rate was higher than yields on similar-maturity German debt for a second day amid bets growth in the U.S. will outpace that in Europe. Yields still remained at less than 2 percent for a fifth day as European stocks and the euro declined.

“The U.S. economy keeps growing,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, Netherlands. “Fourth-quarter data has been much more positive than many of us expected. The main downside risk for Treasury yields is what’s going on in the euro zone.”

U.S. 10-year notes yielded (USGG10YR) 1.94 percent at 9:03 a.m. New York time, after reaching 1.98 percent, the highest since Dec. 28, according to Bloomberg Bond Trader prices. The price of the 2 percent securities due November 2021 rose 1/32, or 31 cents per $1,000 face amount, to 100 16/32.

The rate was five basis points higher (USGG10YR) than the yield on benchmark German bunds. The euro weakened 0.7 percent to $1.2963 and the Stoxx Europe 600 Index of shares fell 0.3 percent.

U.S. factory orders probably rose 2 percent in November from the prior month, according to the median forecast in a Bloomberg News survey of economists before the Commerce Department issues the data today. They declined 0.4 percent in October.

European Focus

Treasury yields fell as much as 2 basis points as German Chancellor Angela Merkel is due to host French President Nicolas Sarkozy Jan. 9 for talks in Berlin with the threat of a credit- rating downgrades still hanging over the euro area.

“Europe is certainly coming back into focus ahead of the Jan. 9 France, Germany summit,” said Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia. “There’s been a trend for the EU summits to overpromise and under deliver.”

Treasuries fell yesterday after a private report showed U.S. manufacturing (NAPMPMI) expanded in December at the fastest pace in six months.

“I’m bearish on Treasuries because the market is underestimating the strength of the U.S. economy,” said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $120.7 billion and is a unit of Japan’s second-biggest brokerage.

The U.S. 10-year yield is projected to advance to 2.69 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.

Euro-area services and manufacturing output contracted for a fourth month in December, London-based Markit Economics said in a report today.

Avoiding Recession

“The U.S. will avoid an outright recession, but the hit from Europe will definitely be felt,” asset-allocation strategists led by Alain Bokobza at Societe Generale SA wrote in an investor report today. “Very loose monetary policy” will support U.S. assets, pushing Treasury yields down to 1.5 percent, they wrote. “We would stay shy of euro zone assets.”

Federal Reserve officials said yesterday they will start announcing their predictions for the central bank’s key interest rate. Last month, they repeated their view that economic conditions would warrant “exceptionally low levels for the federal funds rate at least through mid-2013.” They have kept the target near zero since December 2008.

Fed Goes Long

The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and foster economic growth, in a plan it announced in September. The central bank is scheduled to sell as much as $8.75 billion of securities due from May 2013 to October 2013 today as part of the program, according to the New York Fed’s website.

Demand for safety helped Treasuries due in 10 years or more return 28 percent in the past year, the most among 144 government-bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes.

“The flight to quality because of the European situation and the Fed stance for monetary policy are keeping yields low,” said Hiroki Shimazu, an economist at SMBC Nikko Securities Inc., in Tokyo, a unit of Japan’s third-largest publicly traded bank by assets.

Ten-year yields may struggle to push below 1.84 percent after they approached the least on record at the end of last year, Daiwa Asset Management Co. said, citing trading patterns. A Fibonacci graph (USGG10YR) shows that level is a 76.4 percent retracement of the increase in yields from the record low of 1.67 percent set Sept. 23 to 2.42 percent reached on Oct. 28. Rates slid below the barrier in December but failed to stay there.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance, or below support, indicates it may move to the next level. Support refers to an areas where buy orders may clustered. Resistance is where there may be orders to sell.

 

(Bloombergnews)


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