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Treasuries Decline as Housing Starts Surge Amid Budget Optimism

Nov. 20 (Bloomberg) -- Treasuries fell as a U.S. report showed housing starts unexpectedly rose to a four-year high last month amid speculation the country’s politicians will avoid the so-called fiscal cliff.

Thirty-year securities declined for a fifth day after BlackRock Inc., the world’s largest money manager, recommended stocks over bonds and said U.S. officials will probably reach a compromise to ease the effects of the fiscal cliff. Treasuries rose earlier as Moody’s Investors Service cut France’s top credit rating, boosting demand for the safest assets.

“The data has been mixed, and that pretty much puts the market’s emphasis on the political developments,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “We’re just waiting for things to happen on the political level and take guidance from that.”

The benchmark 10-year yield increased one basis point, or 0.01 percentage point, to 1.63 percent at 8:33 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent security due in November 2022 dropped 1/8, or $1.25 per $1,000 face amount, to 100.

The 30-year bond yield climbed less than one basis point to 2.77 percent, set for the longest streak of increases since the five days ended Aug. 9.

Housing Starts

Housing starts rose 3.6 percent to a 894,000 annual rate, the fastest since July 2008, after a 863,000 pace in September, Commerce Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for starts to fall to 840,000. Building permits, a proxy for future construction, eased after surging the previous month.

BlackRock, the world’s largest money manager with $3.67 trillion in assets, predicted stocks will deliver better returns than fixed-income securities.

“The combination of decent valuations, easy monetary policy, low inflation and still-positive economic growth suggests stocks will continue to outperform bonds over the next 12 months,” Bob Doll, an adviser to New York-based BlackRock, wrote on the company’s website yesterday.

The fiscal cliff refers to $607 billion of tax increases and spending cuts that will automatically come into force at the beginning of 2013 unless lawmakers act. President Barack Obama said yesterday that voters want to cut the budget deficit by imposing higher taxes on the wealthy and reducing spending while Republican lawmakers oppose raising taxes.

Bernanke Speech

Federal Reserve Chairman Ben S. Bernanke is due to speak today amid speculation officials may increase bond purchases to spur the recovery.

The central bank plans to buy as much as $2.25 billion of Treasuries maturing from February 2036 to November 2042 today to help cap borrowing costs, according to the Fed Bank of New York’s website.

Bernanke is scheduled to address the Economic Club of New York at 12:15 p.m. today. The central bank’s next policy meeting is Dec. 11-12.

Volatility in U.S. government bonds dropped to the lowest in more than five years before the U.S. Thanksgiving holiday. Bank of America Merrill Lynch’s MOVE index, which measures price swings for Treasuries based on options, fell to 54.7 yesterday, the least since June 2007.

The Securities Industry and Financial Markets Association recommended Treasuries trading close on Nov. 22 for Thanksgiving and shut at 2 p.m. New York time on Nov. 23.

Treasuries have returned 2.7 percent in the year through yesterday, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index of stocks handed investors an 11 percent gain, according to data compiled by Bloomberg.

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