Primary Pulse 11/13/2014

Good evening TEAM,

 

Treasuries Rise First Time in 3 Days on Low-Inflation Prospects

2014-11-13 21:17:01.710 GMT

 

 

By Susanne Walker and Daniel Kruger

     Nov. 13 (Bloomberg) -- Treasuries gained for the first time in three days amid speculation inflation will remain low as the Federal Reserve gets closer to raising interest rates.

     Government securities briefly pared gains after the U.S.

auction of $16 billion in 30-year debt drew lower-than-average demand. Crude oil dropped to a four-year low, reinforcing investor expectations that gains in consumer prices will be subdued and keep the central bank from boosting borrowing costs faster than policy makers have forecast. Stocks fluctuated, bolstering the appeal of Treasuries as a refuge.

     “When growth is called into question, there’s less concern about inflation problems, so long-duration bonds look attractive,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The market has indeed synced itself to the crude market and we’re seeing this continuing.”

     The current 30-year bond yield dropped three basis points, or 0.03 percentage point, to 3.08 percent at 4:11 p.m. in New York, according to Bloomberg Bond Trader prices. It touched 3.06 percent. The price of the 3.125 percent security maturing in August 2044 gained 18/32, or $5.63 per $1,000 face amount, to

100 30/32.

     Ten-year note yields fell two basis points to 2.35 percent.

     The difference between U.S. three- and 30-year yields was at almost the narrowest since 2009, reflecting demand for longer-term debt. The spread was 210 basis points today after reaching 206 basis points in October, the narrowest since January 2009. The average over the past five years is 288 basis points.

 

                          Provides Time

 

     Brent oil futures sank to $77.83 a barrel, the lowest since September 2010. The Standard & Poor’s 500 Index fell as much as

0.4 percent after rising 0.4 percent earlier.

     “The pull-back in stocks has helped the bid for Treasuries,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Oil prices are off today. That’s marginally supportive as the lack of any inflation pressure gives the Fed time to normalize policy.”

     The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt known as the break-even rate, was 189 basis points.

It shrank to 183 basis points in October, a level not seen since June 2013, after touching 230 basis points in July.

     The Fed’s preferred gauge of inflation has fallen short of policy makers’ 2 percent target for more than two years.

 

                         Benchmark Rate

 

     The U.S. central bank has maintained its benchmark interest-rate target in a range of zero to 0.25 percent since December 2008. Most Fed officials expect to raise it next year, according to projections released in September.

     Dallas Fed Bank President Richard Fisher, one of the more hawkish members of the policy-setting Federal Open Market Committee, will step down in March, the bank said.

     The European Central Bank and the Bank of Japan are embracing bond-purchase stimulus programs to pump money into their slumping economies and combat the risk of deflation.

     The Treasury’s auction of 30-year bonds drew a bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, of 2.29, the lowest since May. The average at the past 10 sales was 2.46.

     The securities yielded 3.092 percent, compared with a forecast of 3.089 percent in a Bloomberg News survey of eight of the Fed’s 22 primary dealers. The last long-bond offering, on Oct. 9, drew a yield of 3.074 percent, the least since May 2013.

 

                           ‘Too Rich’

 

     “We had a strong bid going into the auction,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, which as a primary dealer is obligated to bid in U.S. debt sales. “The bond got a little bit too rich into the lead-up.”

     The auction was rated a “2” by four primary dealers on a scale of one through five, with one being a failed auction. Two denotes a poor auction.

     The offering was the final of three note and bond auctions this week. The U.S. sold $26 billion of three-year debt on Nov.

10 at a yield of 0.998 percent and $24 billion of 10-year securities yesterday at a yield of 2.365 percent.

     The bid-to-cover ratio for the three sales was 2.72 times the $66 billion of debt sold, the lowest since June 2013, according to Treasury data compiled by Bloomberg. Investors have bid 2.99 times the $1.913 trillion of notes and bonds sold by the U.S. government this year, the data show.

     The Treasury said it will sell $13 billion of 10-year inflation-indexed securities on Nov. 20.

 

                         Yield Forecasts

 

     The benchmark Treasury 10-year note will yield 2.5 percent at the end of 2014, according to the median forecast from a Bloomberg News survey conducted from Nov. 7 through Nov. 12. The median projection was 3.44 percent in January and has dropped every month since then.

     Thirty-year bonds will yield 3.2 percent at year-end, economists estimated, down from a January forecast for 4.25 percent.

     U.S. retail sales increased 0.2 percent in October, economists surveyed by Bloomberg forecast before the Commerce Department reports the data tomorrow. Sales dropped 0.3 percent in September.

 

 

Capital Markets

Primary Residential Mortgage, Inc.

1480 North 2200 West| Salt Lake City|  Utah| 84116

Toll Free 1.800.255.2792

www.primaryresidentialmortgage.com capitalmarkets@primeres.com

 

o         Tick       1/32 or .03125

o         MBS       Mortgage Backed Security

o         TBA       To Be Announced (MBS with unknown future delivery)

o         Spec      Specified Pool

 

The contents in this memo are not an endorsement of any financial products or investments. PRMI assumes no liability, and will not make any recommendations with respect to the purchase or sale of any investment security or its derivatives.

Economic Calendar

Date/Time(Central)	Indicator	Period	Est.	Actual	Prior	Revised
11/12/2014 6:00 AM	MBA Mortgage Apps.	7-Nov	--	-0.9%	-2.6%
11/12/2014 9:00 AM	Wholesale Inventories	SEP	0.2%	0.3%	0.7%	0.6%
11/12/2014 9:00 AM	Wholesale Trade	SEP	-0.1%	0.2%	-0.7%	-0.8%
11/13/2014 7:30 AM	Initial Jobless Claims	8-Nov	280K	290K	278K
11/13/2014 7:30 AM	Continuing Jobless Claims	1-Nov	2346K	2392K	2348K	2356K
11/14/2014 7:30 AM	Retail Sales Ex-Autos	OCT	0.2%		-0.2%
11/14/2014 7:30 AM	Import Price Index (MoM)	OCT	-1.5%		-0.5%
11/14/2014 7:30 AM	Retail Sales	OCT	0.2%		-0.3%
11/14/2014 8:55 AM	U of Mich. Consumer Confidence	Nov P	87.5		86.9
11/14/2014 9:00 AM	Business Inventories	SEP	0.2%		0.2%