Treasuries gain for third day as fiscal cliff concern increases

 

New York

Treasury 10-year yields fell for a third day following the re-election of President Barack Obama as investor concern increases that political gridlock may derail chances of an economic recovery.

The benchmark yield has been pushed down as voters returned the president, a Democrat, to the White House and backed a Republican majority to the House of Representatives. Obama invited Democratic and Republican leaders in Congress to the White House next week to begin negotiations to avert the so- called fiscal cliff — $607 billion in automatic spending cuts and tax increases scheduled to take effect starting in January.

"It's going to be a bumpy ride going into the end of the year," said Ward McCarthy, chief financial economist at Jefferies & Co. in New York, one of the 21 primary dealers that trade with the Federal Reserve. "The market reaction to the elections was that it's not good for risk assets, so because that's the case, the market flew back into Treasuries."

The 10-year yield declined one basis point, or 0.01 percentage point to 1.61 percent, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 rose 2/32 or 63 cents per $1,000 face value to 100 5/32. The yield earlier dropped to 1.578 percent, the lowest level since Sept. 5.

The yield declined 11 basis points this week.

U.S. government securities traded at the most expensive levels in five weeks. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, reached negative 0.94 percent, the most costly since Oct. 3. A negative reading indicates investors are willing to accept yields below what's considered fair value. The average this year is negative 0.76 percent.

The difference between the yields on two-year and 10-year notes, the so-called yield curve, narrowed to as little as 132 basis points, the least since Sept. 5. Historically, a so-called flatter yield curve reflects higher demand from investors anticipating slower economic growth and inflation.

Bill Gross, who runs the world's biggest bond fund, increased his holdings of Treasuries for the first time since April as traders increased bets that the Fed would add to stimulus measures.

Gross raised the proportion of U.S. government and Treasury debt at Pacific Investment Management Co.'s $281 billion Total Return Fund to 24 percent of assets last month, from 20 percent in September, according to a report on the Newport Beach, California-based company's website. Mortgages remained the fund's largest holding at 47 percent, down from 49 percent a month earlier. Pimco doesn't comment directly on monthly changes in its portfolio holdings.

Obama backs the Fed's plan to boost the economy through bond purchases. The central bank has bought $2.3 trillion of Treasuries and mortgage-related bonds and instituted plans to purchase $40 billion of home-loan securities a month.

The Fed is also swapping shorter-term Treasuries in its holdings with those due in six to 30 years as part of its efforts to put downward pressure on long-term borrowing costs.

The central bank purchased $1.4 billion of Treasury Inflation Protected Securities maturing from January 2019 to February 2042 today as part of the program, according to the Fed Bank of New York's website.

Hedge-fund managers and other large speculators decreased their net-long position in 10-year note futures in the week ending Nov. 6, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 110,357 contracts on the Chicago Board of Trade. Net-long positions fell by 59,099 contracts, or 35 percent, from a week earlier, the Washington-based commission said in its Commitments of Traders report.

Start your day with The Independent, sign up for daily news emails
Life and Style
Marie had fake ID, in the name of Johanna Koch, after she evaded capture by the Nazis in wartime Berlin
historyOne woman's secret life as a Jew in wartime Berlin
News
news... and what your reaction to the creatures above says about you
News
Jihadi John
newsMonikers like 'Jihadi John' make the grim sound glamorous
News
newsAnother week, another dress controversy on the internet
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Telesales & Customer Service Executive - Call Centre Jobs

£7 - £9 per hour: Recruitment Genius: Are you outgoing? Do you want to work in...

Ashdown Group: Finance Manager - Covent Garden, central London - £45k - £55k

£45000 - £55000 per annum + 30 days holiday: Ashdown Group: Finance Manager - ...

Ashdown Group: Systems Administrator - Lancashire - £30,000

£28000 - £30000 per annum: Ashdown Group: 3rd Line Support Engineer / Network ...

Recruitment Genius: Graduate Web Developer

£26000 - £33000 per annum: Recruitment Genius: A Web Developer is required to ...

Day In a Page

The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003