Treasury Yields Approach This Year’s Low Before Report on U.S. Housing

Treasury yields approached the lowest level this year before an industry report that economists said will show confidence among homebuilders is at recession levels.

Yields indicate traders are cutting bets on inflation. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, narrowed to a 12-week low of 2.32 percentage points on May 13.

“The market has priced in an economic slowdown,” said Takuya Yamamoto, who helps oversee the equivalent of $118.3 billion as a portfolio manager in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co., Japan’s second-biggest life insurer. “Housing will take a long time to recover.”

Ten-year yields declined two basis points to 3.16 percent as of 9:56 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3.125 percent note maturing in May 2021 rose 1/8, or $1.25 per $1,000 face amount, to 99 23/32. The rate fell to 3.13 percent on May 13, the lowest since December.

The National Association of Home Builders/Wells Fargo sentiment index was 17 this month from 16 in April, according to the median forecast in a Bloomberg News survey of economists before the report today. Numbers lower than 50 signal more respondents view conditions as poor.

Federal Reserve Bank of Atlanta President Dennis Lockhart said it’s too early to consider an exit from record stimulus, a process that’s likely to begin only when the recovery becomes “more clearly sustainable.”

Questions Arising

“Even if they are a bit premature in my view, questions are already arising about the specifics of the Fed’s exit strategy,” Lockhart said yesterday in a speech in Atlanta. A change in the Fed’s public statements “would actually start the process” of tightening, he said.

Lockhart has backed the Federal Open Market Committee’s plans to complete a $600 billion Treasury-securities purchase program by June aimed at boosting the recovery. Fed ChairmanBen S. Bernanke and other policy makers last month reduced their forecasts for U.S. growth this year after the economy slowed in the first quarter, while increasing estimates for inflation excluding food and energy prices. www.bloomberg.com