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

Dollar Falls to 16-Month Low Versus Euro on Fed Rate Pledge; Kiwi Declines

The dollar fell to a 16-month low against the euro after the Federal Reserve renewed its pledge to keep interest rates near zero to stimulate economic growth.

New Zealand’s dollar dropped for the first time in three days after Reserve Bank Governor Alan Bollard left interest rates at a record low and said the economic outlook “remains very uncertain.” The yen touched the lowest in two weeks against the euro as Asian stocks extended a global rally in shares, damping demand for Japan’s currency as a refuge.

“The Fed is being perceived as very dovish, with rates likely to stay low for a long time,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “Everyone is taking on risk, which is leading to selling of the dollar and the yen.”

The dollar dropped to $1.4825 per euro as of 9:38 a.m. in Tokyo from $1.4788 in New Yorkyesterday, after earlier touching $1.4838, the weakest since Dec. 8, 2009. The U.S. currency declined to $1.6676 per pound from $1.6627, after reaching $1.6686, the lowest since Dec. 3, 2009. The yen rose to 81.97 per dollar from 82.16. Japan’s currency was at 121.48 per euro from 121.47, and touched 121.64, the least since April 13.

2 1/2 Year Low

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell to 73.091, the lowest level since July 31, 2008, before trading at 73.143 from 73.324 yesterday.

The MSCI Asia Pacific Index of shares climbed 1 percent today after the Standard & Poor’s 500 Index advanced 0.6 percent yesterday.

Fed Chairman Ben S. Bernanke signaled yesterday in his first press conference after a policy decision that the central bank will maintain its record monetary stimulus.

Fed policy makers kept the target rate for overnight lending between banks at zero to 0.25 percent, as forecast by all of the economists in a Bloomberg News survey. The rate has remained at that level since December 2008.

“The Fed is clearly not thinking about tightening policy anytime soon and, from this perspective, there was nothing in the Fed’s language to arrest the dollar’s recent decline,” Spiros Papadopoulos, a senior economist in Melbourne at National Australia Bank Ltd., wrote in a note today.

The New Zealand dollar fell from a three-year high as Bollard said monetary policy won’t change for some time and called the currency’s recent advance “unwelcome.”

The so-called kiwi slid 0.3 percent to 80.54 U.S. cents after climbing to 81.08 cents yesterday, the strongest since March 19, 2008. www.bloomberg.com

Japan’s Topix Advances a Fourth Day led by Mitsubishi UFJ, Tokyo Electric

Japan’s Topix index rose for a fourth day led by Mitsubishi UFJ Financial Group Inc. (8306)after Credit Suisse Group AG raised the lender’s share price estimate. Tokyo Electric Power Co. gained on a report other utilities may be asked to share the cost of the Fukushima nuclear accident.

Mitsubishi UFJ, Japan’s largest publicly traded bank, advanced 1.9 percent. Tokyo Electric, operator of the Fukushima reactors crippled by last month’s earthquake and tsunami, surged as much 11 percent. Yahoo Japan Corp. (4689), an internet portal partly owned by Softbank Corp. (9984), jumped 4.4 percent after Nomura Holdings Inc. raised its investment rating. Sumco Corp. (3436) gained 1.3 percent after the maker of silicon wafers for semiconductors said output will recover to pre-quake levels by May.

“Companies are reporting they’re restarting production or recovering from the quake and that means we’re getting a better idea of what results will be like,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “There’s a sense that trade is starting to move again.”

The Nikkei 225 Stock Average rose 0.4 percent to 9,716.73 as of 12:35 p.m. in Tokyo. The broader Topix index gained 0.3 percent to 844.67. Nine stocks rose for every five that fell.

The Topix declined 9.5 percent through April 22 after a magnitude-9 earthquake and tsunami on March 11 devastated Japan’s northeast coast, disabled the Fukushima Dai-Ichi nuclear power plant, and disrupted supply chains at companies from Toyota Motor Corp. (7203) to chipmaker Renesas Electronics Corp. In the same period, the Standard & Poor’s 500 Index rose about 3.3 percent, while the Stoxx Europe 600 Index dropped 0.9 percent.

Mitsubishi UFJ, Tepco

Mitsubishi UFJ advanced 1.9 percent to 382 yen after Credit Suisse raised the lender’s share price estimate to 413 yen from 346 yen, citing improved earnings. Net income at the bank will rise to 742.5 billion yen ($9 billion) in the year ending March 2012, compared with an earlier forecast for 522.4 billion yen, Credit Suisse analyst Shinichi Ina wrote in a report.

Tokyo Electric rose 8.7 percent to 439 yen, the utility’s first gain in eight days, after Nomura said a possible government plan to compensate victims of the Fukushima accident may force other utilities to contribute. The Nikkei said on April 23 the government is in the final stages of drafting a plan to create an organization made up of utilities and other nuclear-related businesses to compensate evacuees and businesses from around the damaged nuclear plant.

Yahoo Japan, Sumco

Yahoo Japan climbed 4 percent to 29,620 yen after Nomura analyst Yuko Maruyama raised her rating on the company to “buy” from “neutral.” Advertising revenue has been stronger than expected after last month’s disaster and profit in the current quarter period will likely rise, Maruyama said.

Softbank, which owns 36 percent of Yahoo Japan, rose 0.7 percent to 3,425 yen.

Sumco advanced 1.3 percent to 1,619 yen. The company said production will recover in May to pre-quake levels.

Toyota also gained 0.3 percent to 3,305 yen after the automaker said it will begin restoring production levels from July in Japan and from August at overseas plants. Output for all models will return to normal as early November, Toyota said.

To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

http://www.bloomberg.com/news/2011-04-25/japan-s-topix-advances-a-fourth-day-led-by-mitsubishi-ufj-tepco.html