U.S. Treasuries Outperform S&P 500 as Investors Seek Safety
By Wes Goodman
Nov. 8 (Bloomberg) -- Treasuries were little changed after a tumble in global stocks prompted investors to buy U.S. government debt, which has outperformed the Standard & Poor's 500 Index.
Treasuries have handed investors a 6.7 percent gain in 2007, the most since 2002, according to a Merrill Lynch & Co. index. The S&P 500 returned 5.7 percent including reinvested dividends, Bloomberg data show. The government is scheduled to sell $5 billion of 29 1/2-year bonds today.
``I'm positive on Treasuries,'' said Kei Katayama, who helps oversee $1.6 billion of dollar-denominated debt at Daiwa Securities SMBC Co. in Tokyo. ``Yields can fall a little more. Everybody's cautious about having risky assets.'' The company holds more Treasury securities than the percentage in the benchmark it uses to gauge performance, he said.
The two-year note yielded 3.53 percent as of 10:02 a.m. in Singapore, according to bond broker Cantor Fitzgerald LP. The price of the 3 5/8 percent security due October 2009 was little changed at 100 6/32. The notes had their biggest rally in almost a week yesterday as stocks tumbled.
The difference in yield between two- and 10-year Treasuries widened to the most since April 2005 yesterday as a decline in stocks and forecasts of deeper mortgage-related losses increased the appeal of government debt.
U.S. banks and brokers may face another $100 billion of writedowns on hard-to-value securities, according to Royal Bank of Scotland Group Plc.
Yield Spread Widens
The gap between two- and 10-year yields widened 9 basis points to 0.76 percentage point. From no difference in June, the spread has expanded as investors speculated banks' losses on subprime mortgage-related assets may slow the economy and prompt the Fed to cut interest rates.
Traders boosted bets the Fed will reduce its target for the overnight lending rate between banks by a quarter-percentage point to 4.25 percent at its Dec. 11 meeting.
Futures traded on the Chicago Board of Trade imply 70 percent odds of a 25-basis-point reduction next month, compared with a 60 percent chance a week ago. A basis point is 0.01 percentage point.
The central bank lowered the benchmark a quarter-point to 4.5 percent on Oct. 31, after a half-point reduction in September, the first since 2003.
Wall Street's biggest firms have written down at least $40 billion as prices of mortgage-related assets plummet because of record foreclosures.
To contact the reporter on this story: Wes Goodman in Singapore at
wgoodman@bloomberg.net .
Last Updated: November 7, 2007 21:08 EST
http://www.bloomberg.com/apps/news?pid=20601009&sid=avRw7yy86_W8&refer=bond
no indication of a bottom
