Sunday, October 18, 2015

Fwd: (BN) Banks’ Record Treasuries Stockpile Boosts Case for Fed to Hold

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From: "MICHAEL A SALLETTE" <m.sallette@icloud.com>
Date: Oct 18, 2015 4:58 PM
Subject: (BN) Banks' Record Treasuries Stockpile Boosts Case for Fed to Hold
To: "Monty Bannerman" <mbannerman@arcstarenergy.com>
Cc:

Banks' Record Treasuries Stockpile Boosts Case for Fed to Hold

By Wes Goodman

Buying helped push U.S. 10-year yields below 2% this week
Probability Fed will raise rates by December meeting is 30%

(Bloomberg) --

U.S. banks are gorging on Treasuries in the latest sign investors expect the Federal Reserve to postpone raising interest rates.

Commercial lenders boosted their holdings to a record $2.15 trillion at the end of last month, based on Fed data. The stake is almost double the amount owned by China, the biggest U.S. foreign creditor. Treasuries have been advancing since the middle of June, with 10-year yields dipping below 2 percent this week, on speculation the absence of inflation means policy makers will defer raising rates.

"As to why they're holding all these Treasuries, the view of the Fed has changed," said Ali Jalai, who trades bonds in Singapore at Bank of Nova Scotia, one of the 22 primary dealers that trade directly with the Fed. "Maybe they're not going to raise rates this year."

Benchmark 10-year note yields were little changed at 2.01 percent as of 7 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 2 percent security due in August 2025 was 99 29/32. The yield may fall to 1.75 percent by year-end, Jalai said.

Treasuries returned 2.1 percent this year through Thursday, after gaining 6.2 percent in 2014, based on Bloomberg World Bond Indexes.

Fed Forecasts

Investors have been reducing forecasts for a Fed rate increase since August as inflation stagnates in the world's biggest economy. U.S. consumer prices fell in September by the most since January, a government report showed Thursday.

Economists predict data Friday will show industrial production fell last month and a gauge of job openings slipped from a record high in August, based on Bloomberg surveys. The Treasury is scheduled on Friday to release figures on overseas holdings of U.S debt and other assets for August.

Now is the time to seek higher returns outside the Treasury market, said Will Tseng, a bond portfolio manager for Mirae Asset Global Investments.

"The Fed won't hike for the next few months, but we're still in a recovery path" in the U.S., said Tseng, who's based in Taipei. "That's the best position for high-yield and equity assets." Mirae, which has $75 billion in assets, has been adding dollar-denominated high-yield bonds and emerging-market local-currency debt in October, he said.

The probability the Fed will increase rates by its December policy meeting has dropped to 30 percent from 70 percent odds at the start of August, according to futures data compiled by Bloomberg. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff.

To contact the reporter on this story:
Wes Goodman in Singapore at +65-6212-1568 or
wgoodman@bloomberg.net
To contact the editors responsible for this story:
Garfield Reynolds at +61-2-9777-8695 or
greynolds1@bloomberg.net
Nicholas Reynolds, Jonathan Annells