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U.S. Notes May Decline Before Report on Consumer Confidence
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By Aaron Pan and Oliver Biggadike
Nov. 22 (Bloomberg) -- U.S. Treasuries may snap a three-day winning run before a report today expected to show U.S. consumer confidence is near the highest since July last year.
The University of Michigan is forecast to revise up its gauge of sentiment among Americans when it releases the final results for November. The report will probably show cheaper gasoline and higher stock prices are lifting consumer optimism, according to a Bloomberg News survey.
``The U.S. confidence numbers won't help us,'' said Steven Major, head of fixed-income strategy at HSBC Holdings Plc in London. ``It's going to be a tough move for the bond market to rally much further from here. It's not the right time to be going massively overweight'' on Treasuries.
The yield on the benchmark 10-year note was little changed at 4.58 percent at 7:12 a.m. in New York, according to broker Cantor Fitzgerald LP. The price of the 4 5/8 percent bond due November 2016 fell 1/32, or 31 cents per $1,000 face amount, to 100 3/8. Bond yields move inversely to prices.
The final sentiment reading for November probably increased to 93.3 from an initial estimate of 92.3, according to the median estimate of 57 economists. In October, the gauge reached a 15- month high of 93.6. The University of Michigan's report is due at 10 a.m. local time.
``There's upside risk in yields,'' said Peter Munckton, head of debt research at Commonwealth Bank of Australia in Sydney. ``Given what we've seen from consumer sentiment, the inflation risk is still to the high side.''
Growth Forecasts
Any decline in bonds may be limited on speculation the Federal Reserve will cut interest rates after economic advisers to President George W. Bush lowered their growth forecasts for next year.
U.S. economic growth will slow in 2007 because of a weaker housing market, Bush's economic advisers said in their semi- annual forecast. Gross domestic product will increase 2.9 percent next year, down from 3.1 percent in 2006 and slower than the 3.6 percent forecast in June, the Council of Economic Advisers said.
Minutes released yesterday from the Fed's October meeting showed all but one of the 12 regional bank heads voted not to boost the discount rate.
Investors see a 39 percent chance the Fed will lower its target overnight lending rate between banks at its March 21 meeting, compared with 17 percent odds on Nov. 15, according to interest-rate futures. Policy makers left the rate on hold for the past three months, after 17 quarter-percentage-point increases to 5.25 percent, the highest in more than five years.
Housing Market
Losses for Treasuries may also be curbed on speculation consumers will opt to save their extra cash as the housing market slows.
``The decline in gasoline prices hasn't found its way into other components of retail sales,'' said Peter Jolly, head of research at nabCapital, the investment banking unit of National Australia Bank Ltd. in Sydney. Consumer spending ``is going to moderate for sure,'' he said.
Housing starts fell to the lowest in six years, a government report showed Nov. 17. Builders broke ground on new dwellings at an annual rate of 1.486 million in October, down from 1.74 million the previous month, the Commerce Department said in Washington.
The 10-year yield may fall to 4.5 percent this month, Jolly said, a level last reached in February.