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Treasuries rise as home prices fall
Bloomberg News
August 30, 2011
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Treasuries rise as home prices fall
Treasuries rose as a private report showed residential real-estate prices dropped. Bill Gross, who runs the world’s largest bond fund, said he regrets cutting his holdings of American debt.

Government bonds have returned 2.6% in August, the most since December 2008, according to a Bank of America Merrill Lynch index. Pacific Investment Management Co.’s Gross said in a Financial Times interview it was a “mistake to bet so heavily against the price of U.S. government debt.” Treasuries slid yesterday after Federal Reserve Chairman Ben S. Bernanke said last week the economy doesn’t need immediate stimulus.

“Watching the data continues to confirm this dip is going to lead to at least a quarter of negative growth,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA in London. “Then I think the market will be happy to assume that some further stimulus from the Fed does indeed come its way, and that will be bond-supportive, particularly the long end.”

Yields on benchmark 10-year notes dropped six basis points, or 0.06 percentage point, to 2.20% at 9:04 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 rose 17/32, or $5.31 per $1,000 face amount, to 99 12/32.

The 10-year note yields have fallen 58 basis points since July 29 and slid on Aug. 18 to a record low 1.97%. Yields on 30-year bonds dropped six basis points to 3.54% today. Two-year note yields declined one basis point at 0.19 percent.

Gross on Treasuries

Pimco’s Gross said he wishes he had invested in more U.S. government debt earlier this year, the Financial Times reported yesterday, citing an interview last week.

Treasuries have returned almost 7% since February, when Gross eliminated the Total Return Fund’s holding of U.S government securities. He boosted Treasuries to 10 percent of assets in July from 8% in June.

“It was my/our mistake in thinking that the U.S. economy can chug along at 2% real growth rates,” the FT cited Gross, based in Newport Beach, California, as saying. “The U.S. and developed economies are near the recessionary dividing point,” said Gross, echoing comments made in interviews with Bloomberg Television earlier this month.

The US$245 billion Pimco Total Return Fund has lost 1.04 percent in the past month, according to data compiled by Bloomberg. It’s up 3.2 percent this year, trailing almost 70% of its peers, Bloomberg data show.

‘Stall Speed’

“We’re not looking at a recession yet, but we’re at a tipping point,” Gross said on Bloomberg TV’s “Street Smart” with Carol Massar and Matt Miller on Aug. 2. “We’re at what we call a stall speed in which corporate profits don’t grow, jobs aren’t created.”

Gross reiterated in commentary published today on Pimco’s website that the firm favors investing in Australia, Mexico and Brazil, along with non-dollar currencies that have strong ties to Asia. Global equities are also attractive, he wrote.

The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent from June 2010, after dropping 4.6% in the 12 months ended in May, the group said today in New York. The median forecast of 31 economists surveyed by Bloomberg News projected a 4.6% drop.

U.S. bonds trimmed monthly gains after Bernanke sought in his address on Aug. 26 in Jackson Hole, Wyoming, to reassure investors that economic growth is safe in the long run. While he said the Fed has tools to aid the recovery if needed, he stopped short of indicating that the central bank will undertake a third round of bond purchases.

Fed Minutes

The Fed is scheduled today to release the minutes of its meeting on Aug. 9, when policy makers pledged to keep interest rates at a record low through the middle of 2013.

Treasuries fell yesterday, pushing the 10-year note yield up seven basis points, as a report showed personal spending increased in July more than forecast.

+ Wexico

Citigroup Inc.’s U.S. Economic Surprise Index climbed to negative 55 yesterday. While a number less than zero shows the data are falling short of economists’ forecasts, the index has risen from a 17-month low in June when it reached negative 117.

“Treasuries are expensive,” said Kei Katayama, leader of the foreign fixed-income group in Tokyo at Daiwa SB Investments Ltd., home to Japan’s second-biggest bond fund. “Time will prove that the U.S. economy is not that bad.” Katayama plans to sell U.S. government debt if the 10-year note yield falls again below 2%.

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