BLBG: Treasuries Head for Biggest Weekly Drop Since October on Supply
U.S. 10-year Treasury notes were little changed, headed for the biggest weekly loss in three months, amid concern that debt sales will increase as the government boosts spending to ease the deepening economic slump.
Yields held near a six-week high as U.S. sovereign credit risk climbed to a record on speculation President Barack Obama’s administration will join governments around the world in selling record amounts of bonds to rescue banking systems and battle a global recession. Goldman Sachs Group Inc. yesterday raised its 2009 Treasury borrowing estimate to $2.5 trillion.
“There’s an avalanche of supply coming to the market and investors are on the defensive,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets, a securities broker for banks and institutional investors. “The U.S. is going to spend an awful lot of money to get the banking system working again and the economy going. We don’t know if these plans will work, but we know they will need financing.”
Ten-year yields, used to set corporate borrowing costs and mortgage rates, rose 26 basis points this week, the most since the week ending Oct. 31. The yield fell two basis points to 2.58 percent as of 10:16 a.m. in London, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 rose 5/32 from yesterday, or $1.56 per $1,000 face amount, to 110 3/32. A basis point is 0.01 percentage point.
Ten-year rates will decline to 2.44 percent by March 31, according to economists in a Bloomberg News survey.
Swaps covering five-year U.S. government securities rose to 60 basis points today, the most since Bloomberg began tracking the data on Jan. 28, 2008, when they were 7 basis points. That means an investor would currently need to pay $60,000 to protect $10 million of Treasury debt from default.
Treasuries may still be underpinned as losses in stocks stoke demand for the safest assets amid concern the slump will erode company earnings. The MSCI World Index fell 2.6 percent, its fourth drop in five days. Samsung Electronics Co., the biggest maker of memory chips, today reported its first quarterly loss. Sony Corp., the world’s second-largest consumer electronics maker, predicted its first annual loss in 14 years yesterday.
