Treasury 30-Year Bonds Drop as Investors Fight Fed

Treasury 30-year bonds dropped as investors bet on faster inflation even as Federal Reserve Chair Janet Yellen dismissed signs of rising consumer prices.

Benchmark 10-year notes fell for a third week after Yellen said June 18 that the Fed maintains its commitment to low interest rates. Gauges of expectations for consumer prices for periods from five to 30 years widened before the Commerce Department is forecast to report June 26 that the Fed’s preferred measure of inflation rose to the highest since October 2012. The Treasury will sell $107 billion of coupon debt next week.

“The market does seem to be fighting the Fed here,” said James Caron, who manages money in New York at Morgan Stanley Investment Management, which oversees $61 billion of fixed-income assets. “The market believes it’s only a matter of time before those inflation pressures start to manifest.”

The 30-year yield climbed two basis points, or 0.02 percentage point, on the week to 3.43 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. It touched 3.50 percent, the most since May 12. The 3.375 percent security maturing May 2044 fell 12/32, or $3.75 per $1,000 face amount, to 98 29/32.

The benchmark 10-year note yield rose less than a basis point on the week to 2.61 percent, and is up from 2.48 percent at the end of May. The yield on two-year Treasuries added one basis point to 0.46 percent for a fourth weekly gain.

‘Risk Premium’

Treasury five-year break-even rates, which measure the difference between yields on benchmark notes and similar-maturity Treasury Inflation Protected Securities, were 2.09 percentage points, the highest since May 2013. The spread, which represent the bond market’s forecast for the pace of consumer price increases during the life of the debt, had been 1.98 percentage points a week ago.

The 10-year break-even rate widened to 2.27 percentage points from 2.18 percentage points, and for 30-year bonds it climbed to 2.35 percentage points from 2.27 percentage points.

“The market is struggling with, will they overshoot in terms of easy money and what are the implications for longer-term inflation?” Margaret Kerins, the Chicago-based head of fixed-income strategy at Bank of Montreal, one of 22 primary dealer that trade with the central bank. “There’s uncertainty there that justifies a risk premium.”

Yellen, at her June 18 press conference, said that the consumer price index has “been a bit on the high side” while adding that the recent “data that we’re seeing is noisy.” She emphasized the Federal Open Market Committee’s view that rates are likely to stay low for a “considerable time.”

Personal Consumption

The Fed’s 2 percent inflation goal is based on the Commerce Department’s personal consumption expenditures price index, which rose 1.8 percent last month from a year earlier, according to the median estimate of 19 economists and strategists in a Bloomberg survey. That’s after a 1.6 percent gain in April that was the most since November 2012.

Fed policy makers at their June 17-18 meeting cut monthly debt purchases by $10 billion, to $35 billion, while leaving the target rate for overnight lending between banks in the range of zero to 0.25 percent, where it has been since December 2008.

Treasuries dropped on June 17 as the cost of living increased 0.4 percent in May from April, the biggest advance since February 2013, according to Labor Department data. It was the third monthly increase.

“The market is voting with its feet and lifting rates because it doesn’t agree with Yellen’s conclusion on CPI,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York.

Note Auctions

The Treasury will sell $30 billion of two-year notes on June 24, $35 billion of five-year securities the next day and $29 billion of seven-year debt on June 26. It will also auction $13 billion of two-year floating-rate notes on June 25.

The U.S. government sold $7 billion of 30-year TIPS yesterday at a yield of 1.116 percent, versus the average forecast of 1.093 percent by seven of the Fed’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.76, up from 2.34 at the previous sale in February.

The primary dealers held $39.8 billion of Treasury notes and bonds as of June 11, up from $6.2 billion on May 23 and the most since Nov. 29, according to central bank data.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.netKenneth Pringle, Greg Storey

Source:

www.bloomberg.com

Read More

Asia stocks rise on US economic optimism

HONG KONG (AP) — Asian stock markets mostly rose Monday on investor optimism about the U.S. economy, hints from China about further stimulus and weakness in the yen.

Markets in Asia were supported by Friday's Commerce Department report that new home sales rose 6.4 percent in April to a seasonally adjusted 433,000 after falling in the previous two months. Demand for new homes has been one of the last missing pieces as the U.S. economy, the world's largest, recovers from the global financial crisis.

Investors were also heartened after the Standard & Poor's 500 finished 0.4 percent higher at 1,900.53, the first time it has ended above the 1,900 level.

Remarks by Chinese Premier Li Keqiang that suggested Beijing is preparing further mini-stimulus measures to support the economy gave a lift to Chinese shares.

Li said appropriate policy tools and timely fine tuning are being prepared as the world's second biggest economy continues to face "relatively big" downward pressure, the state-run China Daily newspaper said Saturday, citing a speech Li gave on Thursday.

"There seems to be a growing view among Western strategists that while Chinese authorities will keep monetary policy steady, they are starting to look at fairly targeted support for the economy," said Chris Weston, chief strategist at IG Markets in Melbourne.

The Shanghai Composite Index added 0.3 percent to 2,040.48.

Japan's Nikkei 225 benchmark rose 0.7 percent to 14,567.04 as the dollar strengthened against the yen, rising briefly above 102 yen in early trading before slipping to 101.92. A weaker yen means the electronics, cars and other goods made by Japan's exporting giants such as Nikon, Sony and Honda are cheaper for overseas buyers.

Hong Kong's Hang Seng slipped 0.1 percent to 23,957.35 and South Korea's Kospi dipped 0.3 percent to 2,010.73. Australia's S&P/ASX 200 gained 0.3 percent to 5,506.50.

Trading was expected to be thinner than usual, with markets in the U.S. and Britain closed for holidays.

On Wall Street, the Dow climbed 0.4 percent to end Friday at 1,606.27. The Nasdaq rose 0.8 percent to 4,185.81.

The euro weakened to $1.3622 from $1.3630.

In energy markets, oil prices fell. Benchmark crude for July delivery was down 31 cents to $104.04 in electronic trading on the New York Mercantile Exchange. The contract rose 61 cents to settle at $104.35 on Friday.

Source:

www.appeal-democrat.com

Read More

U.S. Retail Sales Rise Slightly, Far Below Expectations

WASHINGTON — Retail sales barely rose in April, tempering hopes of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Tuesday that retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, as well as restaurants and bars, and online retailers.

Retail sales, which account for a third of consumer spending, rose by a revised 1.5 percent in March. That was the largest increase since March 2010 and reflected pent-up demand after a brutally cold winter.

“You really had a spectacular March,” said Guy Berger, an economist at RBS in Stamford, Conn. “You are now having an April hangover. The reality of the economy is decent but not great.”

Economists had forecast sales’ advancing 0.4 percent last month after a previously reported 1.2 percent surge in March.

Data like employment, as well as manufacturing and services industries surveys, had suggested the economy regained strength early in the second quarter. Growth was held down to a 0.1 percent annual rate in the first quarter by bad weather and a slow pace of restocking by businesses.

However, growth will probably be revised down to show a contraction. A second report from the Commerce Department showed that retail inventories excluding automobile stocks barely rose in March.

The government had assumed a big increase in these stocks when it made its advance growth estimates last month for gross domestic product. March trade, construction spending and factory inventory data, which the government did not have in hand for the G.D.P. estimate, have also suggested downward revisions to output.

In April, a gauge of consumer spending slipped and economists said the economy’s weak performance at the start of the year had probably made households more careful about spending.

“It’s possible that consumers are being a bit more cautious in their spending habits as they await confirmation that the economy is, in fact, poised to reaccelerate,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Mich.

So-called core sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of the G.D.P., dipped 0.1 percent in April.

That followed a revised 1.3 percent advance in March. Core retail sales had previously been reported to have risen 0.8 percent in March.

In a separate report, the Labor Department said import prices fell 0.4 percent last month after rising 0.4 percent in March. Economists had forecast prices to be up 0.3 percent last month. In the 12 months through April, import prices fell 0.3 percent.

Last month, retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores. Sales at furniture stores fell 0.6 percent, while receipts at food and drinking spots dropped 0.9 percent.

Sales at nonstore retailers, which include online sales, fell 0.9 percent.

Receipts at building materials and garden equipment stores rose 0.4 percent, however, and sales at auto dealerships increased 0.6 percent. There were also increases in sales at gasoline stations, reflecting higher pump prices.

Excluding gasoline and autos, retail sales fell 0.1 percent.

Receipts at clothing stores rose 1.2 percent. There were also gains in receipts at sporting goods shops.

Source:

www.nytimes.com

Read More

Trade Gap Shrinks as U.S. Exports Show Global Pickup

The biggest gain in U.S. exports in nine months helped narrow the trade deficitin March, pointing to a revival of global demand that will help the world’s largest economy strengthen.

The trade gap shrank by 3.6 percent to $40.4 billion from the prior month’s $41.9 billion, Commerce Department figures showed today in Washington. Sales to foreign customers climbed 2.1 percent to the second-highest level on record as demand grew for aircraft, autos and fuels.

Sales overseas improved from a five-month low reached in February, adding to evidence the U.S. economic expansion began to perk up heading into the second quarter after stalling at the start of the year. At the same time, American households and businesses are gaining confidence as employment improves, indicating imports will also rise.

“Exports rebounded after a few weaker months, and that’s good to see,” said Paul Edelstein, director of financial economics at IHS Global Insight Inc. in Lexington, Massachusetts, who projected the gap would narrow to $40.5 billion. “Imports were also up, and that’s a good sign because it suggests that business and consumer spending are back on track. In general, this is a pretty good report.”

Stocks dropped as lower profit from American International Group Inc. dragged down financial shares. The Standard & Poor’s 500 Index (COMFCOMF) decreased 0.4 percent to 1,877.57 at 11:26 a.m. in New York.

U.K. Economy

News from overseas also pointed to improving demand. U.K. services grew at the fastest pace in four months in April as employment and new business picked up, figures from Markit Economics showed today in London.

The median forecast of 66 economists surveyed by Bloomberg projected the U.S. trade gap would narrow to $40 billion from a previously reported $42.3 billion in February. Estimates ranged from deficits of $43 billion to $38 billion.

Exports increased to $193.9 billion from $190 billion in February paced by record demand from Canada, South Korea and the countries in the CAFTA-DR trade zone, which includes Central America and the Dominican Republic. Shipments to Germany were the strongest since October 2008. Excluding petroleum, exports were at an all-time high in March.

The value of U.S. exports of civilian aircraft climbed to a record over the 12 months ended in March.

“We expect further strengthening in exports,” Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, wrote in a research note. She said bad weather typically disrupts exports more than imports “as trucks find it difficult to get to ports while ships keep coming in.”

Trade’s Beneficiaries

United Parcel Service Inc. is among companies that stand to benefit as the pace of trade improves. The company projects that U.S. economic growth will accelerate as 2014 progresses and the nation bounces back from weather-induced weakness, Chief Executive Officer Scott Davis said in an April 24 earnings call.

“In Europe, the economy is showing signs of recovery and faster growth,” Davis said. “Yet, if the situation in the Ukraine deteriorates, that pace may slow. Economic expansion in Asia has remained steady, with mid-single-digit growth. And in Latin America, expectations call for increased merchandise exports.”

Imports climbed 1.1 percent to $234.3 billion from $231.8 billion in the prior month as Americans bought more foreign-made mobile phones, semiconductors and civilian aircraft, which points to a pickup in business investment. Excluding petroleum, imports were also at a record.

Growth Impact

After eliminating the influence of prices, which generates the numbers used to calculate gross domestic product, the trade deficit was little changed at $49.4 billion compared with $49.8 billion in February. The average in the first three months of the year exceeded the average during the fourth quarter, so trade subtracted from growth.

First-quarter gross domestic product, released last week, showed that the economy grew 0.1 percent. Taken together, exports and imports shaved 0.83 percentage point from growth, the initial Commerce Department estimate showed.

The March improvement in trade was less than the Commerce Department estimated, and combined with previous reports on construction and inventories, indicates the economy contracted at about a 0.5 percentage-point clip at an annualized rate in the first quarter, according to estimates by economists at Morgan Stanley in New York. They project a 3.7 percent rate of growth this quarter.

China Comparison

The trade gap with China, the world’s second-biggest economy, narrowed 2.2 percent to $20.4 billion from $20.9 billion, today’s report showed. China is set to overtake the U.S. as the biggest economy in terms of purchasing power as early as this year, figures from the International Comparison Program, which involves the World Bank and United Nations, showed April 29.

Even so, a cooling pace of Chinese growth and cuts to Europe’s forecast could temper the outlook for U.S. exports. China’s gross domestic product is expected to climb 7.3 percent this year, according to a Bloomberg survey, compared with 7.7 percent in 2012 and 2013. The European Commission predicted yesterday that gross domestic product will rise 1.7 percent in the euro area in 2015, compared with a previous forecast of 1.8 percent.

Meanwhile, demand for foreign-made products could hold up as U.S. consumers grow optimistic about the economy. Consumer confidence rose last week to its second-highest level in more than six years, propelled by growing optimism over household finances and the buying climate, theBloomberg Consumer Comfort Index showed. That corroborated the signal from the Conference Board’s sentiment gauge in April, which was also the second-highest reading since 2008.

Geopolitical Unrest

Geopolitical unrest could also disrupt U.S. sales overseas. Violence has intensified between Ukrainian forces and pro-Russian separatists in eastern and southern Ukraine, less than three weeks before a presidential vote in the country. President Barack Obama and GermanChancellor Angela Merkel said the elections, scheduled for May 25, are the next trigger point determining whether the U.S. and its allies slap broader sanctions on Russia.

Because the U.S. does little trade with Russia and Eastern Europe, the sanctions and upheaval don’t pose major threats to trade, Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, said before the report.

To contact the reporter on this story: Jeanna Smialek in Washington atjsmialek1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.netVince Golle

Source:

www.bloomberg.com

Read More

Retail Sales Rise Shows U.S. Recovers From Winter Chill: Economy

March 13 (Bloomberg) -- Sales at U.S. retailers rose in February for the first time in three months, claims for jobless benefits dropped last week and consumer confidence improved, pointing to an economy regaining traction after a harsh winter slowed demand even more than previously estimated.

The 0.3 percent advance in purchases followed a 0.6 percent drop in January that was larger than initially reported, the Commerce Department in Washington said. Unemployment claims unexpectedly fell to a more than three-month low and consumer sentiment rose to the second-highest level since August.

The confidence report showed those at the lowest end of the pay scale were becoming less pessimistic, a sign the improving job market will help broaden gains in spending. The extent of the economic damage inflicted by the weather remains open to debate, which means Federal Reserve policy makers will probably continue to trim monthly bond purchases at a measured pace when they meet next week.

“We’ll see a little bit more traction on the consumer side as the weather improves and people get a little bit more willing to leave the house,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit and the best forecaster of retail sales over the past two years, according to data compiled by Bloomberg. Still, the gain in February “has to be considered against the negative revisions to January and December.”

Stocks fell, erasing early gains after the Standard & Poor’s 500 Index came within four points of a record. The S&P 500 declined 0.6 percent to 1,857.5 at 12:25 p.m. in New York.

Economists’ Forecasts

The median forecast of 84 economists surveyed by Bloomberg called for a 0.2 percent advance in retail purchases. Estimates ranged from a 0.2 percent drop to a 0.6 percent gain. The decline in January, revised from an initially reported 0.4 percent decrease, was the biggest since March. December receipts were also weaker -- down 0.3 percent compared with a previously estimated 0.1 percent drop.

Another report from the Labor Department showed first-time claims for unemployment benefits dropped by 9,000 to 315,000 in the week ended March 8. Employers cutting back on dismissals may be encouraged to take on more workers as demand rebounds. Payrolls increased by 175,000 in February after a 129,000 gain that was more than initially estimated, the agency said March 7.

“The labor market continues to improve,” said Brian Jones, senior U.S. economist atSociete Generale in New York who accurately forecast the number of claims. “The economy is not in a soft patch.”

Consumer Comfort

Improving conditions in the job market help explain why households are more upbeat. The Bloomberg Consumer Comfort Index climbed to minus 27.6 in the period that ended March 9 from minus 28.5 the prior week.

The advance was the fifth straight and the reading was second only to the minus 27.4 in the week ended Dec. 22 as the strongest since mid-August. Americans were more optimistic about the economy than at any time in the last seven months.

The Bloomberg gauge of whether it’s a good time to buy also increased. The report showed sentiment improved for those making less than $15,000 a year, reaching the highest level since August.

“Better employment prospects and a reduced pace of firings in the economy has bolstered confidence in the broader economy,” said Joseph Brusuelas, a senior economist atBloomberg LP in New York. “Improved sentiment among lower- income groups is particularly important and will likely support growth later this year.”

The labor market is also showing signs of picking up in Australia. The number of people employed full-time rose by 80,500 in February, the biggest increase since August 1991, after the country’s last recession.

Broad-based Gain

News Source: www.sfgate.com

Read More