Lucy Meakin and Wes Goodman
Treasuries rose before a report that economists said will show U.S. residential real-estate prices dropped. Bill Gross, who runs the world’s largest bond fund, said it was a mistake to cut his Treasury holdings.
U.S. government debt has returned 2.58 percent in August, the most since December 2008, Bank of America Merrill Lynch data show. Pacific Investment Management Co.’s Gross said in a Financial Times interview that it had been 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 isn’t weak enough to warrant immediate stimulus.
“Watching the data continues to confirm this dip is going to lead to at least a quarter of negative growth,” saidPeter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank 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.”
Benchmark 10-year yield dropped four basis points to 2.22 percent at 10:29 a.m. in London, according to Bloomberg Bond Trader prices. The 2.125 percent note maturing in August 2021 rose 3/8, or $3.75 per $1,000 face amount, to 99 6/32.
The rate has fallen 57 basis points, or 0.57 percentage point, since July 29.
Gross Regrets
Pimco’s Gross said he wishes he’d invested in more U.S. government debt earlier this year, the Financial Times reported yesterday, citing an interview last week.
Since February, when Gross eliminated his holdings, Treasuries have returned 6.94 percent, the Bank of America Merrill Lynch index shows. That compares with a 3.74 percent gain in the preceding 12 months.
“It was my/our mistake in thinking that the U.S. economy can chug along at 2 percent real growth rates,” the newspaper cited Gross, who is based in Newport Beach, California, as saying. “The U.S. and developed economies are near the recessionary dividing point,” Gross said, according to the FT.
The $245 billion Pimco Total Return Fund (PTTRX) has handed investors a 1.04 percent loss in the past month, according to data compiled by Bloomberg. It is up 3.2 percent this year, trailing almost 70 percent of its peers, Bloomberg data show.
Home Values
The S&P/Case-Shiller index of home values in 20 U.S. cities fell 4.6 percent from June 2010, the biggest 12-month decrease in 19 months, according to the median forecast of economists surveyed by Bloomberg News. Separate data today will show consumer confidence sank in August to the lowest level in 10 months, another survey predicts.
U.S. bonds trimmed gains toward the end of this month after Bernanke sought in his address on Aug. 26 in Jackson Hole, Wyoming, to reassure investors that U.S. 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.
Treasuries fell yesterday, pushing up the 10-year yield by seven basis points, as the Standard & Poor’s 500 Index rallied 2.8 percent to its highest level in almost a month, curtailing demand for the relative safety of government debt.
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.
‘Expensive’
“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 Treasuries if the 10-year yield falls below 2 percent, he said. The record low is 1.97 percent set on Aug. 18.
Today’s 10-year rate translates into negative 1.38 percent after accounting for inflation of 3.6 percent as measured by year-on-year changes in consumer prices. Two-year notes have a so-called real yield of negative 3.4 percent.
The Fed is scheduled to release the minutes of its Aug. 9 meeting today, after policy makers pledged at the session to keep interest rates at a record low through the middle of 2013.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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