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| Consumer prices in US decline most in 6 decades |
| Bloomberg / Singapore Nov 20, 2008, 00:08 IST |
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Two-year yields dropped to levels not seen since 2003.
Treasuries rose, and yields showed inflation expectations are the lowest in at least a decade, before a government report that economists say will show consumer prices fell the most since 1949.
Two-year yields dropped to levels not seen since 2003 as traders added to bets for the Federal Reserve to cut interest rates to spur the shrinking US economy. Treasury Secretary Henry Paulson on Tuesday cautioned against trying to use the government's financial-rescue program as an economic recovery package, saying it was designed to stabilise financial markets.
“There's no need to worry about inflation,” said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co, part of Japan's second-largest brokerage. “The Fed will cut once more. For short-term yields, there is room to go down.”
The yield on the benchmark 10-year note fell two basis points to 3.50 per cent as of 11:43 am in Tokyo, according to BGCantor Market Data. The price of the 3.75 per cent security maturing in November 2018 increased 5/32, or $1.56 per 1,000 face amount, to 102 2/32, gaining for a fourth day.
Yields on two-year notes, among the most sensitive to changes in borrowing costs because of their short maturities, fell one basis point to 1.12 per cent. They will decline to a record 1 per cent by year-end, Nagai said. The yield touched 1.0558 per cent on June 13, 2003, the lowest since the Fed began tracking the figure in 1976.
The difference between rates on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes, which reflects the outlook among traders for consumer prices, was 56 basis points. The spread yesterday shrank to the narrowest since Bloomberg began compiling the figures in 1998.
Futures on the Chicago Board of Trade show an 88 per cent chance the central bank will reduce its target for overnight bank loans, now 1 per cent, by 50 basis points at its next meeting on December 16.
The odds of a 75-basis-point cut rose to 12 per cent as of late on Tuesday in New York from zero a day before. A basis point is 0.01 percentage point.
Barack Obama will take office in January during a global recession that has led investors to shun all but the safest assets.
Treasuries returned 7.4 per cent so far this year, while German government bonds rallied 8.1 per cent and Japanese sovereign securities gained 1.4 per cent, according to indexes complied by Merrill Lynch & Co US corporate bonds handed investors a 15 per cent loss, heading for their worst year since Merrill started compiling the figures in 1997.
McDonald's Corp, the world's largest restaurant company, will increase investment in Asia next year to boost customer numbers as a global recession forces people to cut living expenses.
“People are trading down and we're capitalising on that,” Tim Fenton, McDonald's president for Asia, the West Asia and Africa, said yesterday in a Bloomberg Television interview in Hong Kong.
In the US, consumer prices probably dropped 0.8 per cent last month, the most since 1949, after being unchanged in September, according to the median estimate in a Bloomberg News survey before the Labor Department reports the figure on Wednesday.
Target Corp, the second-largest US discount chain, said it plans to offer larger discounts to draw shoppers.
Housing starts dropped to a 7,80,000 annual pace in October, the lowest level since records began in 1959, economists said before a separate report from the Commerce Department on Wednesday.
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