(Bloomberg News) Treasuries headed for their steepest weekly loss in almost two months on speculation the economy is growing enough to keep Federal Reserve Chairman Ben S. Bernanke from announcing a third round of quantitative easing today.
Traders added to inflation bets, damping expectations for QE3. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.08 percentage points from 2.02 percentage points a week ago. The average for the past decade is 2.11 percentage points. Bernanke will speak at the annual Fed symposium in Jackson Hole, Wyoming.
"He may not announce QE3, but he will say they have other options to stimulate the economy," said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co., which oversees the equivalent of $38.7 billion and is a unit of Japan's second- largest bank. "Yields have already declined sharply. We will consider selling" if they fall further, he said in Tokyo.
Benchmark 10-year notes yielded 2.24 percent at 6:30 a.m. in London, according to Bloomberg Bond Trader prices. The 2.125 percent note maturing in August 2021 changed hands at 98 31/32.
The rate climbed 18 basis points this week, the most since the period ended July 1. The rate has risen from the record low of 1.97 percent set on Aug. 18.
Japan's 10-year bond yielded 1.04 percent, matching a one- week high. Core consumer prices in the nation unexpectedly rose 0.1 percent in July, a government report today showed, gains economists say won't end the nation's fight against deflation.
"Things aren't too bad," Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest interdealer broker, wrote in a report today. "U.S. consumers are spending at a rapid clip, industrial production is robust."
U.S. government securities still returned 2.72 percent in August, their best monthly performance since December 2008, based on Bank of America Merrill Lynch data. Investors sought the security of debt while stocks tumbled, sending the MSCI All Country World Index of shares down almost 12 percent.
The Fed on Aug. 9 announced that it plans to keep its benchmark interest rate at a record low until the middle of 2013.
"We're living in a world of low interest rates," said Hans Goetti, the Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, the Zurich-based money manager that oversees the equivalent of $1.77 billion. "I don't see any bright spark at the moment that would justify much higher rates."
Ten-year yields may approach 1.5 percent in the coming months, according to Goetti.
Yields will rise to 2.74 percent by year-end, according to a Bloomberg survey of financial companies, with the most recent forecasts given the heaviest weightings.
A U.S. report today will show the nation's gross domestic product grew at a 1.1 percent annual pace in the second quarter, down from the 1.3 percent rate that the government estimated last month, according a Bloomberg News survey of economists.
Bernanke used his Jackson Hole speech last year to announce the Fed would "do all that it can" to spur growth. He went on to implement a $600 billion debt-purchase plan in November.
A plunge in world stock markets in August led to speculation earlier in the month that the Fed chief would use today's speech to announce another round of bond buying.
"The market has pared back its expectations of additional purchases to some extent," Ajay Rajadhyaksha and Dean Maki, analysts at Barclays Capital Inc., wrote in a report yesterday. "However, there is still scope for disappointment." The company is one of the 20 primary dealers authorized to trade directly with the Federal Reserve.