TIPS Extend Record Loss to Almost 10% Before Consumer Prices

September 17, 2013 Leave a comment

TIPS Extend Record Loss to Almost 10% Before Consumer Prices

Treasury Inflation Protected Securities are extending this year’s record loss to almost 10 percent before a government report economists said will show the annual increase in the cost of living slowed in August. TIPS have declined 9.5 percent in 2013, the most since they were first sold in 1997, based on Bank of America Merrill Lynch data. The Federal Reserve will probably reduce its monthly bond purchases to $75 billion from $85 billion after a two-day meeting concludes tomorrow, according to a Bloomberg News survey of economists on Sept. 6.“Inflation is not a threatening issue,” said Kei Katayama, who buys non-yen debt in Tokyo for Daiwa SB Investments Ltd., which manages the equivalent of $49.7 billion. “Fixed-rate bonds are a better value than TIPS.” Katayama said he’s avoiding U.S. inflation-protected bonds.

Ten-year yields fell one basis point, or 0.01 percentage point, to 2.86 percent at 10:02 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2.5 percent note due August 2023 rose 2/32, or 63 cents per $1,000 face amount, to 96 30/32.

Consumer prices probably advanced 1.6 percent in August from a year earlier, slowing from 2 percent in July, according to a Bloomberg News survey of economists. Month-on-month costs increased 0.2 percent, matching July’s increase, based on the responses. The Labor Department report is scheduled for release at 8:30 a.m. in Washington.

Inflation-protected notes pay interest on principal that increases at the same rate as the consumer price index.

Summers Withdraws

Treasury notes rose yesterday on speculation the withdrawal of Lawrence Summers’s candidacy to be the next Federal Reserve chairman may mean the central bank will be less aggressive in slowing monetary stimulus.

Five-year notes led gains as traders bet Vice Chairman Janet Yellen would hold short-term rates lower for longer if she succeeds Ben S. Bernanke in January.

The yield on the 30-year bond rose yesterday, with Federal Open Market Committee members forecast to announce a tapering of the central bank’s bond-buying program tomorrow.

Volatility as measured by the Merrill Lynch Option Volatility Estimate MOVE Index was 94.55 basis points yesterday, the lowest level since Aug. 15. It has declined from 114.19 on Sept. 5, a two-month high.

Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose 49 percent to $419.5 billion yesterday. This year’s average is $316.7 billion.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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