New Home Sales May Decline

July 25 2008 - Treasuries were little changed, headed for a weekly gain, before a government report that may show new-home sales in the U.S. fell to near the lowest since 1991 and as stocks in Europe and Asia declined.

Returns on U.S. government debt for July turned positive on speculation global losses in stocks will spur demand for the relative safety of fixed-income securities. The MSCI World Index has fallen 5 percent in a month. Merrill Lynch & Co.’s U.S. Treasury Master Index showed a 0.1 percent gain for the month, erasing a loss, after U.S. financial shares fell yesterday the most in eight years.

“The safety flows have picked up again, and that’s supportive for bonds,” said Peter Mueller, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany’s second- biggest lender. “There’s no improvement to be seen in the housing market. As long as this market is in the doldrums, the financial sector will continue to be in trouble. The market is pricing out rate-hike expectations.”

The yield on the benchmark 10-year note was little changed at 4.00 percent at 8:08 a.m. in New York, according to BGCantor Market Data. The 3.875 percent security due May 2018 traded at 98 31/32. The yield fell 9 basis points, or 0.09 percentage point, this week.

The yield on two-year notes was little changed at 2.60 percent, slipping 4 basis points in the week.

The Dow Jones Stoxx 600 Index of European shares slipped 0.9 percent. The MSCI Asia Pacific Index of regional shares tumbled 2.5 percent. Financial stocks in the Standard & Poor’s 500 Index fell 6.7 percent as a group yesterday, the third loss in the past three weeks greater than 5 percent.

New Home Sales

The Commerce Department will likely say today that sales of new houses dwindled to an annual pace of 503,000 in June from 512,000 a month earlier, a Bloomberg News survey of economists shows. The department will also say orders for U.S. durable goods dropped 0.3 percent from May, according to a separate Bloomberg survey.

Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co., predicted yesterday the housing slump will cost banks and brokerages $1 trillion.

Futures contracts on the Chicago Board of Trade show traders scaled back forecasts for the Federal Reserve to raise its 2 percent target rate for overnight bank lending this year.

The odds of at least a quarter-percentage point increase fell to 66 percent, from 89 percent a month ago. There’s a 95 percent chance that policy makers will leave the rate unchanged when they meet Aug. 5, the contracts show.

Treasuries Head for Weekly Advance; New Home Sales May Decline
by Anchalee Worrachate and Wes Goodman | Bloomberg