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Treasury Yield Near Seven-Week High

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Going against a group of seven peers, Treasury yield nears a seven-week high by just two basis points, thereby increasing speculation that the premium will draw investors to America’s debt.

US government securities coming due in 10 years and more returned 19% this year, the best performance relating to the US dollar among 144 bonds indexed that Bloomberg and the European Federation of Financial Analysts Societies track. Today, the Treasure will report overseas holdings of US securities for September, this following foreign ownership of the country’s debt reaching a record high the month prior.

Alan von Mehren, Chief Analyst with Copenhagen-based Danske Bank A/S said that US assets look attractive and that because low yield levels in Japan and Europe are pushing US yields lower, more people are starting to look to the US for better yields.

According to Bloomberg Bond Trader data, the benchmark Treasury 10-year yield dropped two basis points of 0.02% point to 2.32%.

In October, US producer prices increased unexpectedly. The advance of 0.2% in the producer-price index came after a 0.1% drop the previous month as indicated in a Labor Department report. As shown in a Bloomberg survey, the median estimate called for a 0.1% decline.

For 10-year Treasuries, yields were up 84 basis points over the average of G-7 peers. Yesterday, premium increased to 86 basis points, the widest level since September 30.

Tomohisa Fujiki, head of interest-rate strategy in Tokyo’s BNP Paribas SA, Treasuries are relatively attractive. Fujiki’s New York unit is one of the 22 primary dealers that underwrite US debt. He added that the US should attract money.

In August, foreign ownership of US government debt climbed to $6.07 trillion, approximately one half of the $12.4 trillion of securities traded publically.

Similar maturity was seen with the extra yield 10-year Treasuries offer over U.K. gilts at 21 basis points following a widening yesterday to 22 basis points, the most in a 15-month period. At 154 basis points was the premium over German 10-year bunds, this after hitting 157 in September, the greatest difference in 15 years.

Bloomberg’s dollar index, responsible for tracking the greenback against 10 of its peers, was pushed by overseas demand for US debt and up for the fifth month. In addition, US yields were higher compared to other countries based on speculation that the US economy will remain strong enough for the Federal Reserve to hike interest rates in 2015.

In a statement yesterday, Fed Governor Jerome Powell said he anticipates the US central bank to increase borrowing costs next year, agreeing with remarks made earlier this month by William C. Dudley, New York Fed President.

Will Tseng, money manager at Mirae Asset Global Investments Co., in Taipei, which oversees $62.2 billion said that overseas demand might not be enough to keep yields from increasing. However, as long as people think the economy is growing, there will be less demand for safety assets. Therefore, the hawkish tone of the Fed keeps dragging Treasury yields higher. Tseng added that he is holding emerging-market bonds since their yield is more than Treasuries.

The target for the federal funds rate was kept by the Fed, a rate charged by banks to one another on overnight loans and within a range of 0% to 0.25% since December of 2008.

Implied yield on 30-day fed fund futures contracts that will expire in December of next year was 0.52%. This is the first month that prices had a quarter percentage point increase.

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Don Miller

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