U.S. Treasuries were little changed before a government report that economists said will show housing starts fell to a 12-year low in September.
Notes may rise for a third day as global stocks slid on speculation the slump will curb economic growth. The slowdown is feeding expectations among some investors that the Federal Reserve will trim interest rates for a second time before year- end to maintain the nation’s economic expansion.
“Consumer spending may decline,” said Hiromasa Nakamura, who helps oversee the equivalent of $25.7 billion at Mizuho Asset Management Co. in Tokyo. “The Fed will cut rates and U.S. Treasury yields will fall.”
Ten-year yields declined 1 basis point to 4.65 percent as of 11:57 a.m. in Singapore, according to bond broker Cantor Fitzgerald LP. The price of the 4 3/4 percent security due in August 2017 rose 2/32, or 63 cents per $1,000 face amount, to 100 26/32.
The yield will decline to 4.53 percent by year-end, according to a Bloomberg News survey of economists, with the most recent forecasts given the heaviest weightings. Nakamura forecasts 4.3 percent.
Housing starts fell 3.8 percent to an annual rate of 1.28 million, according to the median forecast of economists surveyed by Bloomberg News before the Commerce Department report today. Figures from the Labor Department are projected to show prices paid by consumers rose 0.2 percent after dropping in August, according to a separate Bloomberg survey.
Rate Cut
There’s a 51 percent chance the Fed will cut its target for overnight lending between banks to 4.5 percent by year-end from 4.75 percent now, futures contracts indicate.
Japan’s Nikkei 225 Stock Average slid 0.6 percent, after U.S. shares dropped for a second day, feeding demand for the relative safety of government debt. In India, regulators yesterday proposed limits on global funds betting on stocks, raising concern the rupee will weaken.
“The near-term impact to investor sentiment should be significant,” JPMorgan Chase & Co. strategists Claudio Piron and Yen Ping Ho in Singapore wrote in a note to clients today.
Roger Bridges, who oversees the equivalent of $5.34 billion at Tyndall Investment Management in Sydney, said he owns more Treasuries than the percentage in the benchmark he uses to gauge performance.
The slowdown in housing has yet to spread to other parts of the economy, though it still may happen, he said.
“Given the scale of what we’ve seen, there’s the possibility that we just haven’t seen the impact yet,” Bridges said. “It may take a couple of months.”
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To view the original article, click here
Posted by bondsblog as Market Trends at 7:36 AM EDT
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California and the Port of Oakland will sell the largest of $6.8 billion of long-term bond offerings scheduled this week in the U.S. municipal market.
The state of California plans to offer $1.5 billion of bonds to fund schools, prisons, housing, parks, water systems and other civic works as well as about $1 billion to refinance debt. The Oakland agency, operator of California’s third-busiest container seaport and the fourth-busiest in the nation, will borrow $550 million in another refinancing.
Demand for state and local government debt may be tempered as individual investors are less attracted to the bonds following a plunge in municipal yields last month. Some institutions that borrow to fund their purchases, such as hedge funds and Wall Street proprietary trading desks, are also pulling back after losses in August.
“There are definitely some people who are not going to come back because they got their fingers burned,” said Jon Schotz, co-founder and chief investment officer of Saybrook Capital LLC in Santa Monica, California, which manages $1.5 billion, including a municipal hedge fund.
Yields on top-rated 30-year tax-exempt bonds rose 6 basis points, or 0.06 percentage point, to 4.46 percent last week, according to an index compiled by Bloomberg. The gauge hit a three-year high of 4.76 percent Aug. 27 before falling 41 basis points in two weeks as buyers rushed in to snap up bonds.
“Some rate shock is still present” among individuals who buy and hold securities directly, George Friedlander, municipal strategist at Citigroup Inc., said in an Oct. 12 report.
Fund Withdrawals
Investors withdrew more money than they added to municipal- bond mutual funds for the first time in six weeks, according to the latest figures from AMG Data Services.
Municipal bonds dropped in mid-August after institutions hurt by the reassessment of risk in taxable fixed-income sought to raise cash even as U.S. Treasuries rose on global demand for government-backed safe-harbor investments.
Investors, particularly those using interest-rate swaps that work better as hedges against falling municipal prices when other kinds of debt move in the same direction, were hurt when the usual pattern broke down. Swaps are contracts whose value is derived from other tradable securities.
Tender-option bond programs — which profit from the gap between short- and long-term rates and use swaps as hedges — have played a bigger role in buying new debt in recent years, though U.S. taxpaying households remain the single largest group of municipal bondholders.
“The muni market does face some challenges, with demand seeming to be a bit softer from the household sector right now,” Friedlander wrote.
Ohio Tobacco Sale
This week’s planned issuance matches the weekly average for 2007, based on Bloomberg data, after this year’s largest tax- exempt bond deal — Ohio’s $5.5 billion offering of debt backed by settlement payments from cigarette makers — was pushed back four days.
Ohio’s sale of tobacco-settlement bonds, carrying low investment grades or no credit ratings, begins Oct. 19 with a two-day priority order period for individuals and ends Oct. 23. The deal represents more than a quarter of the $19 billion of new issues in Bloomberg’s 30-day visible-supply total.
“The Ohio deal is unlikely to have any significant impact on the plain-vanilla muni market, because tobacco settlement bonds do not tend to compete directly for demand with highly rated munis,” Friedlander said.
California is collecting orders from individuals today and tomorrow for its $2.5 billion of general obligation bonds. A group of 29 underwriters led by Goldman Sachs Group Inc. will set prices and rates for funds, insurers, banks and other institutions Oct. 17.
Port of Oakland
The Port of Oakland deal, run by Citigroup, has its retail order period today, with final pricing tomorrow. The agency, also operator of Oakland International Airport, is selling bonds with a new, intermediate lien on port revenue, ranked below senior-lien bonds in repayment priority and above commercial paper. The transaction’s proceeds will pay off commercial paper and refinance some senior debt.
This week’s largest municipal auction, where underwriters and interest costs are selected through competitive bid, will come from New Jersey. The Environmental Infrastructure Trust’s $221 million issue of top-rated bonds will raise money for local water, sewer and open-space projects.
In the short-term market, Puerto Rico will sell $1 billion of nine-month notes to give the U.S. commonwealth cash to cover some operating expenses before more tax revenue arrives.
Wachovia Corp. will manage the sale of debt backed by a letter of credit from seven financial companies led by the Bank of Nova Scotia, which has a 20 percent share.
To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net.
To view the original article, click here.
Posted by bondsblog as Market Trends at 7:29 AM EDT
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Treasuries
It was another quiet day with no data in which the short end continued to trade poorly. The 2s-10s spread got to 49.5bp before recovering a bit in the afternoon and we go out with it trading 50.5bp. Some deal pricings in the afternoon took some intermediates out of the market which caused 5 year notes to be the best performer on the curve.
Swaps
Swap spreads were tighter yesterday as we continue to see better receiving on the back of corporate issuance in intermediates. Late in the daym 2-year spreads came in as well and the swap spread curve actually steepened. This suggests that perhaps accounts are close to being back onside and that the preponderance of the bad steepeners have been stopped out.
Agency MBS
There was Asian buying at the open in GN and FN 6s had mortgages 1+ tighter vs treasuries. That did not last long however, as was started to see good selling from originators and servicers. Each of them sold approx 2 billion, for a total of 4 billion in selling from 8AM to noon. Mortgages remained heavy the rest of the day, despite swaps tightening by ½ a bp. They closed 1.25 wider vs treasuries. Stackwise, up in coupon
was a little weaker, hurt by the rally in the market and a flatter treasury curve. Better fast money selling of 15yrs.
Today’s Market Focus
Trade Balance AUG (8:30 AM) Last -$59.2 Billion; Consensus -$59.0 Billion
Import Prices SEP (8:30 AM) Last -0.3%; Consensus 1.0%
Jobless Claims OCT 6 (8:30 AM) Last 317,000; Consensus 315,000
Budget Statement SEP (12:00 PM) Last $56.2 Billion; Consensus $100.0 Billion
ICSC Chain Store Sales SEP (Throughout the day) Last 2.9%; Consensus 2.7%
Fedspeak. Krozner in North Carolina (10:45 AM)
Posted by bondsblog as Market Trends at 7:20 AM EDT
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