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Posted on April 18, 2011
Kaoru Yosano, Japan’s minister for economy and fiscal policy. Photographer: Tomohiro Ohsumi/Bloomberg
Treasuries held a two-day gain as bondholders from Japan to the U.S. said the market will still draw investors even after Standard & Poor’s threatened to lower the nation’s rating.
U.S. debt is “attractive,” Finance Minister Yoshihiko Noda said at a press conference in Tokyo today. Economic and Fiscal Policy Minister Kaoru Yosano reiterated the comment. Pacific Investment Management Co., which runs the world’s biggest bond fund, said the Treasury market will still be a place for other nations to invest.
“Where will they put their reserve assets?” Tony Crescenzi, a market strategist and portfolio manager for Pimco in Newport Beach, California, said in an interview on Bloomberg Television’s “First Up” with Susan Li. “The Treasury market remains the deepest, most liquid market in the world.”
Ten-year rates were little changed at 3.37 percent as of 12:40 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3.625 percent note due in February 2021 traded at 102 2/32.
Yields are down from 3.80 percent a year ago and below the average of 5.21 percent over the last two decades even with the U.S. projected to post a deficit in excess of $1 trillion for a third consecutive year. Yields will remain less than 4 percent through year-end, according to the median forecast of 73 economists in a Bloomberg News survey.
S&P yesterday put the U.S. government on notice that it risks losing its AAA ranking unless officials agree on a plan by 2013 to reduce budget deficits and the national debt.
Still Have Demand
China, Russia, Brazil, South Korea and other nations will still have demand for Treasuries, Crescenzi said, even as Pimco joins the criticism of U.S. spending. Bill Gross, who runs the record-size $236 billion Pimco Total Return Fund, set a bet against U.S. government and related debt in March. U.S. spending may result in inflation and currency devaluation, he said in his April outlook posted on Pimco’s website.
Worldwide reserve assets climbed to a record $9.65 trillion this month, according to data compiled by Bloomberg. China is America’s largest creditor, holding $1.15 trillion of the $9.13 trillion in publicly traded debt. Japan is second with an $890.3 billion investment.
“We continue to see U.S. debt as an attractive investment,” Noda said.
Treasuries would still be “extremely good-quality securities” even if the grade is cut, Yosano said in a separate press conference in the Japanese capital.
Treasuries rose yesterday as speculation that Greece will be unable to avoid a default and declines in stocks boosted demand for refuge assets.
“Geopolitical concerns haven’t gone away, and we are seeing safety flows into Treasuries,” said Russ Certo, a managing director and co-head of rates trading at Gleacher & Co. in New York.
Credit-default swaps covering Treasuries climbed to an 11- week high of 49.5 basis points yesterday, according to data provider CMA. Of 56 markets tracked by Bloomberg data, only Germany, the Netherlands, Denmark, Switzerland, Finland, Sweden and Norway have lower swap costs.
Traders use credit-default swaps to speculate on credit quality. A drop in price signals improved perceptions of creditworthiness, while an increase suggests the opposite. The contracts pay the buyer if a borrower fails to meet its debt agreements.
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