Primary Pulse 11/21/2014

Good evening and happy Friday,

 

Mortgages are starting to get exciting again, the project to update our pricing engine is getting close to being complete thus I’ll have more time to focus on the Pulse!  1.5 ticks away from reaching this year’s all-time highs achieved 10/15 and only 19 ticks away from the high pricing set April 5^th, 2013.

 

Treasuries Gain Amid Stimulus by Central Banks in Europe, China

2014-11-21 20:30:39.887 GMT

 

 

By Daniel Kruger

     Nov. 21 (Bloomberg) -- Treasuries rose for a second day with central banks in Europe and China increasing stimulus measures amid signs of slowing growth, raising the relative attractiveness of higher-yielding U.S. government debt.

     The difference in yields between benchmark 10-year Treasury notes and comparable German bunds is 1.55 percentage points.

European Central Bank President Mario Draghi said officials would expand debt purchases if the inflation outlook weakens.

Sovereign-bond yields in France, Italy and Ireland reached record lows. China cut benchmark interest rates for the first time since July 2012.

     “If you look at the spread differential between 10-year bunds and Treasuries, we’ve gotten back to extreme levels,”

said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “That’s really what’s pulling us lower in yield.”

     The U.S. 10-year yield fell two basis points, or 0.02 percentage point, to 2.31 percent at 3:28 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.25 percent note due in November 2024 gained 7/32, or $2.19 per

$1,000 face amount, to 99 14/32. The yield, which was little changed on the week, has climbed from 2.22 percent a month ago.

     The 30-year bond yield decreased three basis points to 3.02 percent. It lost three basis points on the week.

 

                          Yield Spread

 

     U.S. 10-year notes’ extra yield today versus their German counterparts compared with 1.33 percentage points a month ago.

The spread reached 1.56 percentage points on Nov. 12, the most since Sept. 17.

     German 10-year bund yields reached 0.766 percent today after falling to a record-low 0.715 percent on Oct. 16. French 10-year yields touched 1.109 percent, and their Irish counterparts fell to as low as 1.478 percent. Italian 10-year yields dropped to as low as 2.207 percent.

     As central-bank officials in Europe and Asia embrace stimulus to spur slumping economies, Federal Reserve policy makers are discussing when to raise interest rates from virtually zero next year for the first time since 2006. The Fed concluded a program of bond purchases last month, citing economic improvement.

     The ECB began buying asset-backed securities today, a spokesman said.

     Draghi said at the European Banking Congress in Frankfurt that policy makers “will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.” Euro-region bond yields dropped amid speculation the ECB will add purchases of sovereign debt to its stimulus program.

 

                          Chinese Rates

 

     The People’s Bank of China reduced its one-year lending rate by 0.4 percentage point to 5.6 percent, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75 percent. The central bank had said selective easing would be enough to revive the world’s second-largest economy and had pumped 769.5 billion yuan ($126 billion) into money markets since September.

     The Bank of Japan bolstered its already-record stimulus on Oct. 31, pledging to increase bond holdings at an annual pace of

80 trillion yen ($680 billion).

     “Central banks are still trying to orchestrate economic growth,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.

 

                         Greater Demand

 

     Treasuries advanced earlier amid speculation potential new rules on Fed regulation of banks’ commodities business would spur demand for U.S. debt. In testimony before the Senate, Fed Governor Daniel Tarullo said trading physical commodities poses “unique risks” to banks and that regulators should examine additional capital requirements and other policies. The new rules are to be proposed early next year.

     “Any time you’re talking about increased capital requirements, it implies greater structural demand for Treasuries,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of the 22 primary dealers that are obligated to bid U.S. debt sales. “It’s pretty black and white.”

     The Department of Commerce probably will revise its calculation of third-quarter growth in U.S. gross domestic product to 3.3 percent, from the 3.5 percent that it estimated in October, economists surveyed by Bloomberg forecast before data due Nov. 25.

     By contrast, the euro-area economy grew 0.8 percent in the third quarter from the year before.

 

                          Low Inflation

 

     The U.S. economy is expanding without spurring inflation.

The Fed’s preferred measure of prices, a gauge tied to personal consumption expenditures, has held below policy makers’ 2 percent target for more than two years. It was at 1.4 percent in September. The consumer price index rose 1.7 percent in October from a year earlier, a report showed yesterday, unchanged from September.

     The gap between yields on 10-year notes and comparable Treasury Inflation Protected Securities, an indicator of trader expectations for consumer prices over the life of the debt called the break-even rate, narrowed to as little as 1.83 percentage points yesterday. That was the least since June 2013.

The measure, which reached 2.31 percentage points in January, was at 1.88 percentage points today.

     The U.S. is scheduled to sell $28 billion of two-year Treasuries on Nov. 24, $13 billion of two-year floating-rate notes and $35 billion of five-year securities on Nov. 25 and $29 billion of seven-year debt Nov. 26.