Japan which is reported abroad: U.S. Bonds Converge With Japan in Biggest Rally Since 2008

2011年8月16日火曜日

U.S. Bonds Converge With Japan in Biggest Rally Since 2008 - San Francisco Chronicle

Article:U.S. Bonds Converge With Japan in Biggest Rally Since 2:/g/a/2011/08/15/bloomberg1376-LPV4G807SXKX01-5G5KHFNT68KD4R952B67AMPAFN.DTL

(Updates to show Treasuries fell in European trading in ninth paragraph.)

Aug. 15 (Bloomberg) -- U.S. government bond yields are poised to converge with Japan's for the first time in almost two decades, sparking the biggest returns for investors in Treasuries since 2008 while raising concern that America may be stuck in a prolonged period of below-par economic growth.

"We are beginning to resemble Japan from an interest-rate policy standpoint as well as potentially an economic growth standpoint," Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said in a telephone interview Aug. 10. Investors are "fearful of low growth and are fleeing to high-quality sovereign paper at whatever yield."

Treasuries soared last week after Standard & Poor's cut the U.S. credit rating from AAA, Europe's sovereign-debt crisis deepened and stock markets gyrated, with the Dow Jones Industrial Average rising or falling an average of 3.85 percent each day. The bond rally drove two-year Treasury yields down to a record low and within three basis points of similar-maturity Japanese debt, the smallest gap since 1992, data compiled by Bloomberg show.

The outlook for the U.S. economy is so weak that the Federal Reserve took the unprecedented step last week of saying it will keep its benchmark interest rate at almost zero through mid-2013. That promises to bolster demand for Treasuries as the government sells bonds to finance a budget deficit that Congress forecasts will exceed $1 trillion for a third straight year.

Estimates Slashed

Global financial strains, government fiscal austerity and a lack of jobs led economists to slash their estimates for growth in gross domestic product in 2012 to 2.4 percent, from 3 percent in July, based on the median of 81 estimates in a Bloomberg News survey. Japan's government said last week the nation's GDP may expand 0.5 percent in the year started April 1.

Even Gross, who is co-chief investment officer at Newport Beach, California-based Pimco, has been building his holdings of U.S. government debt since eliminating the securities from his $245.5 billion Total Return Fund in February, saying at the time that Treasuries "have little value" because of the nation's growing debt burden and inflation-adjusted yields below zero. The fund had 10 percent of its assets in U.S. debt last month.

Treasuries have returned 6.73 percent this year on average, exceeding the 5.88 percent gain for all of 2010 and the most since they rallied 14 percent in 2008. That was the year the economy shrank 3.5 percent as the subprime-mortgage crisis deepened and Lehman Brothers Holdings Inc. collapsed.

Yields Tumble

The yield on the benchmark two-year Treasury fell last week 10 basis points, or 0.1 percentage point, to 0.19 percent. Ten- year yields tumbled 30 basis points to 2.26 percent, the biggest drop since they tumbled 45 basis points in the period ended Dec. 19, 2008. The yield touched a record low 2.0346 percent.

The 10-year yield climbed two basis points to 2.28 percent today as of 9:29 a.m. in London.

Strategists are having a hard time adjusting their forecasts fast enough to keep up with the declines. A Bloomberg survey of 46 economists and strategists released Aug. 12 showed that they slashed their median 10-year yield estimate for the first quarter to 3.10 percent from 3.75 percent in July's poll.

"We may end up seeing the lows close to 1.5 percent before the cycle is over," said David Rosenberg, the chief economist at Gluskin Sheff & Associates in Toronto and the former chief North American economist at Merrill Lynch & Co. Rosenberg said early last month in a radio interview with Tom Keene on "Bloomberg Surveillance" that 10-year notes would "retest the lows in yields we had in 2008."

Relative Yields