Government bonds are falling more than a year

Government bonds are falling more than a year as the gap between the yields of long-term Treasury show that the second round of quantitative easing Federal Reserve may be your last.

The difference between 10 - and 30-year yields fell to 1.05 percentage points or 105 basis points on December 15 from a record 1.60 points on November 10, the most since the early 1980. The change in the yield curve call is being held as Bank of America Merrill index data show Lynch U.S. bonds due in 10 years or more lost 4.64 percent this month, trimming gain of 2.010 to 8.37 percent.

Flattening usually heralds the end of the Fed cuts interest rates to stimulate growth. U.S. reports this month showed rising retail sales, rising consumer confidence and a jump in industrial production after the central bank increased its balance to a record high of 2.39 trillion, injecting money into the financial system. Is the addition of 600 billion dollars to buy Treasury through so-called quantitative easing to keep the economy from deflation.

"A peak in the yield spread between 10 and 30 marks the end of an easing cycle," said Steven Wieting, managing director of economic and market analysis at Citigroup Inc. "It's part of a recovery and improvement of growth expectations. If the outlook is for a stronger recovery, then QE is limited and can not expand beyond it. "

Weaken the dollar

While Chinese Premier Wen Jiabao and John Boehner, R-Ohio, and the next speaker of the House of Representatives, said the policy of the Fed chairman, Ben S. Bernanke 's weaken the dollar and add to instability, market measures are showing a strong economy with contained inflation.

500 of Standard & Poor's has risen 5.37 percent this month, reaching a maximum of two years. Yields on speculative-grade corporate bonds fell last week by 5.4 percentage points to Treasuries, the thinnest margin since November 2007. U.S. The dollar index has appreciated 2.9 percent since Nov. 12, the day the Fed started buying Treasuries.

Economists in New York, JPMorgan Chase & Co. raised its growth forecast this month for the first half of 2011 to 3.8 percent from 2.8 percent.

Bill Gross, who oversees the return of $ 250000000000 Total Fund, the world's biggest bond fund, Pacific Investment Management Co. in Newport Beach, California, said in October that the purchases of assets the Fed is likely to mean The 30-year career in bonds. The firm said in a filing with the Securities and Exchange Commission U.S. in Washington last week that the fund may invest in securities linked to equity, for the first time since 2003.

The higher yields

"We hope that there can be additional growth in the economy," said David Glocke, who manages about 171 billion U.S. dollars as head of taxable money market investments at the Vanguard Group Inc. in Valley Forge, Pennsylvania. "That is contributing to the flattening bias."

Yields on 10-year bond rose one basis point last week to 3.33 percent. The price of the reference note 2625 percent in November 2020 fell 2 / 32, or 63 cents per $ 1,000 face amount, to 94 3 / 32, BGCantor market data showed. Yields on 30-year bonds rose by the same amount, to 4.44 percent as the 4.25 percent security due in November 2040 were down 3 / 32 to 96 30 / 32.

ten-year notes yielded 3.31 percent and the 30-year rates were 4.42 percent today as of 11:22 pm in Tokyo.

The monthly loss

Treasures of the deadlines have lost an average of 2.02 percent in December, according to Bank of America Merrill Lynch indexes. The last time the U.S. government debt fell over the month was December 2009 when it fell 2.64 percent as reports showed a slowdown in job losses and the Fed said that economic conditions have improved "modestly."

The Fed said last month that will focus about 86 percent of their purchases of bonds with maturity of 2.5 years to 10 years, making the long call debt security that best reflects market sentiment the yield curve, which plots the rates on Treasury bonds less than longer maturities.

Last week, the extra yield investors demand to hold a 10-year 2-year debt reached the widest since February after President Barack Obama extended tax cuts that are expected to drive growth and increased deficits. The difference increased for the third week, increasing to 272 basis points on Dec. 17 of 268 basis points on Dec. 10. The spread hit 289 basis points on December 15, the widest since 23 February.

The difference between 10 - and 30-year yield is still more than double the average of about 29 basis points in the last three decades.

History of the Fed

In 1992, the maximum spread of 109 basis points in October, a month after the Federal Reserve Alan Greenspan cut the target rate for overnight loans between banks a day to 3 percent. At the time the central bank began to raise borrowing costs in February 1994, the curve was reduced to about 46 basis points.

Then in 1998, the gap was about 58 basis points a month before the Fed cut rates in November for the third time this year. When the Fed began pushing its target in June 1999 was about 12 basis points. The difference was 97 basis points in March 2004, three months before the Fed tightened monetary policy for the first time since 2000. The curve flattens out completely by the time the Fed left in June 2006.

While a flat yield curve signs of declining inflation concerns, the defeat of the Treasury may show a growing awareness that improving the U.S. economy is increasing prices.

Inflation measures

The Labor Department said December 14 that the costs of wholesale sales rose 0.8 percent in November, the highest in eight months, led by increases in gasoline, heating oil and fruit. A day later, said that consumer prices excluding food and fuel rose 0.8 percent from a year earlier, matching the biggest increase since September 2004.

"Bernanke has to be sure that by now we avoid deflation," said John Brynjolfsson, who oversees about 362 million U.S. dollars of assets as chief investment officer at Aliso Viejo, California, hedge funds Armored Wolf LLC.

The quantitative easing will last until June, as part of a plan to "promote a stronger pace of economic recovery" and keep prices stable "over time," the Federal Open Market Committee said in a statement on 14 December.

Consumption increases

The Commerce Department said this week the center of personal consumption expenditures index, which excludes the cost of food and energy, rose 0.9 percent in November from a year earlier. The Fed has said he would prefer that the measure of inflation rising at a rate of 1.6 percent to 2 percent.

The difference between yields on 10-year bonds and Treasury Inflation-Protected Securities widened to 2.36 percentage points on December 16, up from 1.47 percent in August and the most since May 4 . The rate of equilibrium is called the annual rate of inflation traders expect over the life of the bonds.

Employers added 39,000 jobs in November after 172,000 the previous month, the Labor Department figures showed even when the unemployment rate rose to 9.8 percent, the highest since April.

"The important thing is to increase economic growth, low risk aversion, that's all good for the economy," said Jeremy Siegel, finance professor at Wharton School University of Pennsylvania. "Interest rates from a historical point of view are still very low."