Singapore: US Treasuries may gain before reports on manufacturing, consumer confidence and home sales that may add to evidence economic growth is slowing.
Ten-year benchmark yields declined on Monday as traders boosted bets the Federal Reserve will lower interest rates at least once this year. Inflation expectations have dropped in the past two weeks, judging by yields on treasury inflation-protected securities. The treasury department plans to sell $8 billion (Rs33,600 crore) of five-year TIPS on Monday.
“If you want to buy inflation on this planet, you go to Europe,” said David Keeble, head of fixed-income strategy at Calyon, the investment bank of France’s Credit Agricole SA, in London. “The US economy is slowing. The TIPS market has been very difficult to find buyers for. We’ve been advising clients to buy treasuries.”
In the past month the US 10-year yield has ranged from 4.56% to 4.78%. It declined last week as government reports showed consumer prices excluding food and energy rose less than economists forecast in March, prompting traders to boost bets the Fed will lower its 5.25% target for the overnight lending rate between banks this year.
Demand at a TIPS auction today may wane after the US consumer price index excluding food and energy rose less than economists forecast, said ICAP Australia Ltd. in Sydney. Inflation-protected securities pay interest at lower rates than regular notes and bonds, on a principal amount that increases in line with the consumer price index.
“I’d be buying treasuries rather than TIPS,” said Michael Thomas, head of economics and strategy at ICAP. Reports on home sales and business spending, areas the Fed has identified as potential threats to growth, may boost demand for treasuries.
An industry report on Tuesday is forecast to show the pace of existing home sales fell for the first month in four. The median forecast of economists polled by Bloomberg News is for an annual pace of 6.40 million in March, from 6.69 million in February.
Home sales are forecast to have picked up to an annual pace of 890,000 last month from 848,000, the slowest since 2000. The commerce department report is due on 25 April. Another departmental report is forecast to show orders for durable goods increased last month.