BLBG: Treasuries Drop as Stock Markets Rebound, Before Debt Auction
By Lukanyo Mnyanda
Dec. 9 (Bloomberg) -- Treasuries fell for a third day, pushing the 10-year yield to near the highest level in a week, as stocks around the world gained and the U.S. government prepared to sell more debt this week than forecast.
Two-year notes also slipped as demand for the safety of fixed-income securities waned after President-elect Barack Obama pledged to boost the U.S. economy with the biggest public-works spending package since the 1950s. The Treasury Department will sell $28 billion of three-year notes tomorrow and $16 billion of 10-year notes the next day, about $3 billion more than expected by Wrightson ICAP LLC.
“The risky asset classes have a bit of a positive tone, while Treasuries are looking stretched,” said David Schnautz, an interest-rate strategist in Frankfurt at Commerzbank AG, Germany’s second-largest lender. “The auction was slightly more than we expected and that’s also induced upward pressure on yields.”
The yield on the benchmark 10-year note rose one basis point, or 0.01 percentage point, to 2.75 percent by 7:45 a.m. in New York, according to BGCantor Market Data. The 3.75 percent security due November 2018 fell 4/32, or $1.25 cents per $1,000 face amount, to 108 20/32. The two-year yield advanced one basis point to 0.95 percent.
Equities in Europe climbed for a second day, with the Dow Jones Stoxx 600 Index adding 1.2 percent. The Standard & Poor’s 500 Index futures expiring this month rose 0.5 percent.
Treasuries fell yesterday, pushing the 10-year yield to the highest level since Dec. 2, as Obama pledged to boost the U.S. economy with the biggest public-works spending package in a half- century. The government announced larger-than-forecast sales, prompting traders to bet the new supply will depress prices.
‘Wild Card’ for Bonds
Sales “could create some sell-off on concerns over the increase in supply next year,” Giuseppe Maraffino, a bond strategist in Milan at UniCredit Markets & Investment Banking, a unit of Italy’s largest bank, wrote in a client note. “The supply issue will be a wild card” for bonds.
The Treasury sold $20 billion in 10-year notes at the previous sale on Nov. 12. The bid-to-cover ratio, which compares the number of bids with the amount of securities offered, was 2.2, compared with an average of 2.16 at the past 10 auctions.
Losses may be limited before a private report that may add to signs the housing slump is deepening, fueling appetite for the safest assets.
The index of pending home resales fell 3 percent after dropping 4.6 percent in September, according to the median estimate of 34 economists surveyed by Bloomberg News. The index was down in five of the first nine months of the year. The National Association of Realtors is scheduled to release the data at 10 a.m. in Washington.
Economy a ‘Concern’
“The economy is very much the concern and it’s not getting any better,” said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking unit of France’s Credit Agricole SA. “Bonds are going to remain underpinned. It’s difficult to go against the market at the moment.”
Investors should maintain “long positions” on Treasuries because policy makers will cut borrowing costs in an attempt to revive the economy, Green said, without providing a forecast. A long position is a bet an asset price will increase.
Treasuries are on course for their best year since 2000 as rising unemployment and slowing economic growth prompted speculation the Federal Reserve will trim interest rates further to counter the slump. U.S. notes of all maturities returned 11.4 percent this year as investors sought the safest securities, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. European bonds paid investors 7.9 percent in the same period.
Bonds surged this year as the U.S. housing slump pushed up the cost of credit globally, causing equity markets to tumble. The world’s biggest financial companies incurred almost $1 trillion in writedowns and losses since the start of last year, helping push the major economies into recession.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
