United States Treasuries Snap Decline as Fed Plans to Purchase Notes Today

US Treasuries snapped a decline from yesterday as the Federal Reserve prepared to buy as much as $6 billion of U.S. debt today, after saying it intends to stick to its plan to purchase $600 billion of securities by June 30.

Yields have risen too far given that inflation is running slower than the Federal Reserve wants, according to Nikko Cordial Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc., Japan’s third-largest publicly traded bank. The U.S. government is scheduled to sell $29 billion of seven-year debt today, the last of three note auctions this week.

“It will take a few quarters for inflation to pick up,” said Hiroki Shimazu, an economist at Nikko Cordial in Tokyo. “That will make Treasury yields fall in the next few months.”

Ten-year notes yielded 3.41 percent as of 6:51 a.m. in London, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 traded at 93 1/2. The yield increased eight basis points yesterday.

U.S. government securities have fluctuated between gains and losses for the past eight sessions. The 10-year rate will fall to 3 percent by March 31, Shimazu said.

The Fed will buy $4 billion to $6 billion of notes maturing from July 2012 to July 2013 today, according to its website.

The euro was near a two-month high versus the dollar before a German report forecast to show consumer prices rose at the fastest pace in two years. The 17-nation currency rose to $1.3722 yesterday, the strongest since Nov. 22.

Extra Yield

The extra yield investors demand to hold two-year German notes instead of similar-maturity Treasuries expanded to 70 basis points today, the most since January 2009.

The difference between 2- and 30-year rates was 3.96 percentage points. The spread widened to a record 3.98 percentage points on Jan. 20 based on closing levels, indicating investors have been demanding greater compensation for rising costs in the economy.

Ten-year Treasury Inflation Protected Securities show bondholders expect the consumer price index to increase 2.27 percentage points annually on average over the life of the debt. Economists surveyed by Bloomberg forecast an inflation rate this year of 1.7 percent.

Treasuries fell yesterday as the Fed maintained its bond- purchase program while saying the pace of economic expansion is insufficient to lower unemployment. The jobless rate has been more than 9 percent for 20 months.

Government securities also declined after the U.S. sold $35 billion of five-year notes and a report showed sales of new homes rose more in December than economists forecast.

‘Full Speed Ahead’

While commodities have risen, “longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward,” the central bank said in a statement yesterday after its two-day meeting.

The inflation gauge watched by the Fed, which excludes food and energy costs, increased 0.8 percent in the 12 months through November. The figure is below the 1.6 percent to 2 percent range central bank officials say is consistent with achieving their legislative mandate for stable prices.

Treasuries are heading for a fourth monthly decline on signs the economy is improving. U.S. debt has handed investors a 3 percent loss since the end of September, based on Bank of America Merrill Lynch data.

The MSCI All Country World Index of stocks returned 11 percent in the period, according to data compiled by Bloomberg. U.S. corporate bonds fell 0.2 percent, the BOA indexes show.

Durable Goods

Orders for U.S. durable goods and pending home sales both rose in December, economists said before government and industry reports today. At General Electric Co., the world’s biggest maker of jet engines, operating earnings will increase “nicely” this year, Chief Executive Officer Jeffrey Immelt said Jan. 21.

The Fed’s purchases of Treasuries and mortgage debt reduce the supply of those securities, according to Fidelity Investments, the Boston-based fund manager that oversees $1.6 trillion of assets.

“The corporate bond market is still reasonably attractive,” David Prothro, a debt fund manager at Fidelity, wrote in a report yesterday on the company’s website. “The U.S. economy is stabilizing.”

The seven-year notes being sold today yielded 2.77 percent in pre-auction trading, compared with 2.83 percent at the previous sale of the securities on Dec. 29.

Investors bid for 2.86 times the amount on offer last month, up from 2.63 times in November. Indirect bidders, the class of investors that includes foreign central banks, bought 64.2 percent of the debt, versus a 10-sale average of 50.9 percent.

--Editors: Nicholas Reynolds, Jonathan Annells

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Bullion Bank Run

Bullion Bank Run

Debt Ceiling Increase - 71% of United States Citizens say NO

The United States Debt Celing - A new poll, published by Rueters, say Americans by a strong 71% oppose raising the debt ceiling, even it if mean defaulting on credit but, don't want to make any cuts.

'No way forward for US economy'

The United States economy has "no way forward" unless the administration addresses the root causes of the current economic crisis which includes extensive "military expenditures", said Rodney Shakespeare, professor of binary economics.

"There is no way forward unless the United States addresses the causes of the problems and starts by cutting its military expenditure. And secondly it must stop exporting jobs and it must address the problems of Main Street America," Shakespeare told Press TV's U.S. Desk Friday.

He said recent warnings by rating firms over the U.S. debt crisis are "serious" as the debt has reached "unrepayable levels." "Debt cannot be repaid and won't be repaid", he added.

Leading rating firms have warned that the U.S. triple-A credit rating could be jeopardized if the government does not reverse the upwards trend of debt rations.

China moves to prop up Europe's economy

The Asian nation pledges to buy billions of dollars' worth of bonds in European Union governments to restore confidence in the debt-ridden region. The EU is China's biggest trading partner.

Reporting from Beijing and London —

Growing into its role as a global economic power, China is pledging to buy billions of dollars' worth of bonds in European governments to help restore confidence in the debt-ridden region.

The move is the latest evidence that the giant Asian nation is developing ties with strategically important trading partners and expanding its influence in areas where it has long played a minor role.

In what European media have dubbed a charm offensive, Chinese Vice Premier Li Keqiang was all smiles on a recent swing through the continent, assuring the Germans that their economy was complementary to China's and praising the Spanish as good friends.

He also dispensed plenty of largess, promising to aid the souring economies of Spain and Portugal — pledges that were seen as more than just goodwill.

If Beijing wants its economy to keep flourishing, China can't afford the collapse of the euro any more than the nations that use it. The European Union is China's biggest trading partner, and China is the EU's second-biggest export market.

That adds impetus for helping the Spanish consumers who buy Chinese-made clothes and other exports or the German firms that provide Chinese manufacturers with the sophisticated equipment they need.

"There are mutual benefits behind China's diplomacy where both sides can win," said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank under the Ministry of Commerce.

China already has significant holdings of European debt. In Spain alone, it owns 43 billion euros ($57.3 billion) in that country's debt — about a fifth of existing Spanish bonds.

On Thursday, Spain easily raised 3 billion euros ($3.9 billion) in a debt auction that was a key test of investor confidence, and Italy sold 6 billion euros ($7.8 billion) in medium- and long-term bonds. The offerings came a day after Portugal conducted a successful bond sale.

It wasn't immediately known how much debt China bought, but the nation wasn't alone. Japan, for instance, also has said it would buy European government debt.

Still, China's foray into the European crisis underscores the growing influence that Beijing's deep pockets play.

Portugal's finance minister, Fernando Teixeira dos Santos, met with Chinese banking and finance officials in Beijing last month to promote the sale of Portugal's debt. The heavily indebted country has resisted calls for an EU bailout despite record yields for its bonds — a sign of how risky investing in Portugal remains.

In Spain, where unemployment hovers at 20%, domestic media reported that China had offered to buy 6 billion euros more in government bonds. On Li's trip this month the two countries signed business deals worth more than $7 billion.

Alfredo Pastor, an economics professor at the IESE Business School of the University of Navarra in Barcelona, said China's intervention to help prop up Spain sent a strong signal to other investors that Spain was a safe bet.

"China has very deep pockets," Pastor said. "If you can see on the other side somebody who's willing to sustain the paper, then your urge to short it may be lower, [and that] may contribute to stabilizing the situation."

Experts warn, however, that China's largess alone is not large enough to resolve the worsening state of many European balance sheets.

"This can help on the margins, definitely, but that's not what's going to shift the balance," said Antonio Garcia-Pascual, chief economist for southern Europe at Barclays Capital in London. "While the Chinese announcement is welcome, it's not a solution."

Countries on the EU's so-called periphery, such as Ireland and Greece, in addition to Spain and Portugal, are deeply troubled financially. Reversing their downward spiral would require not only hundreds of billions of dollars but also new growth drivers to build the nations out of debt.

"It's a solvency crisis," said Michael Pettis, a senior associate at the Carnegie Endowment for International Peace and a professor at Beijing's Peking University specializing in financial markets. "And you can't keep borrowing yourself out of insolvency.

Read on at source

Bernanke Expresses Concern Over Sluggish United States Economy January 09, 2011

The United States Federal Reserve chair Ben Bernanke said while the US economy was showing signs of a recovery, this was not yet sufficient to address lingering unemployment.

Addressing the Senate Budget Committee, Bernanke said it would take a number of years for the employment situation in the United States to reach “normal” levels. He said :” We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold”. He added that the job market improvement had been “modest” at best.

Bernanke said that :” Persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery”. He added that low inflation was also a key concern as :” Very low inflation increases the risk that new adverse shocks could push the economy into deflation”.

United States Labour Department figures showed that US unemployment dropped marginally in December to 9.4% from 9.8% the month before. The drop was the largest recorded in a single month in over 12 years. This is mitigated however by the statistic that 260,000 Americans were removed from the calculation after giving up on seeking employment.

Job Creation Not Good; Bernanke Says to Give It Four or Five Years

The Labor Department has reported that the economy created 103,000 jobs last month. That’s not good. With revisions, the economy created 71,000 jobs in November and 210,000 in October.

The unemployment rate fell to 9.4%. Ben Bernanke testified before Congress this morning. Here’s the bit getting a lot of attention:

Although it is likely that economic growth will pick up this year and that the unemployment rate will decline somewhat, progress toward the Federal Reserve’s statutory objectives of maximum employment and stable prices is expected to remain slow. The projections submitted by Federal Open Market Committee (FOMC) participants in November showed that, notwithstanding forecasts of increased growth in 2011 and 2012, most participants expected the unemployment rate to be close to 8 percent two years from now. At this rate of improvement, it could take four to five more years for the job market to normalize fully.