BLBG: Treasuries Are Little Changed Before Record Auctions This Week
Treasuries were little changed, after yields on 10-year notes rose to the highest since Nov. 26, as the U.S. prepared to sell a record $67 billion of notes this week.
The government is poised to auction $32 billion of three- year notes tomorrow, $21 billion of 10-year debt on Feb. 11 and $14 billion of 30-year bonds on Feb. 12. Treasury Secretary Timothy Geithner delayed the announcement of the Obama administration’s financial-recovery plan. Federal Reserve Chairman Ben S. Bernanke and other policy makers have failed to resolve an internal debate over whether to purchase long-term U.S. securities.
“Geithner, Bernanke and the stimulus plan will all set the tone for supply this week,” said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world’s largest inter- dealer broker. “I think it’s too early to get bearish about supply until we know more. There is more and more uncertainty and less and less risk-taking.”
The yield on the benchmark 10-year note rose one basis point, or 0.01 percentage point, to 3.01 percent at 8:41 a.m. in New York, according to BGCantor Market Data. It touched 3.02, the highest in 11 weeks. The price of the 3.75 percent security maturing in November 2018 fell 1/8, or $1.25 per $1,000 face amount, to 106 1/4.
Ten-year yields, which slid to a record low of 2.04 percent on Dec. 18, averaged 4.55 percent this decade. They will fall to 2.75 percent by the end of this week, Schnautz said. Yields will be at 2.57 percent by June 30, according to a Bloomberg survey of strategists and analysts that gives a heavier weighting to the most recent forecasts.
‘On the Sidelines’
“A decent rally in Treasuries isn’t expected until supply is out of the way,” said David Schnautz, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany’s second- biggest lender. “Traders are on the sidelines until after the auctions.”
The U.S. will require more foreign investment than ever this year as the government boosts borrowing, with $493 billion of sales earmarked for this quarter, a 34 percent increase over what was initially forecast.
Goldman Sachs Group Inc., one of the 17 primary dealers that are required to bid at Treasury auctions, said last month the U.S. will likely borrow a record $2.5 trillion in the fiscal year ending Sept. 30, almost triple the $892 billion in notes and bonds sold in fiscal 2008.
Treasuries lost 0.4 percent this month, after a 3.1 percent decline in January that was the most in almost five years, according to Merrill Lynch & Co. indexes.
The difference between two- and 10-year yields widened to 200 basis points for the first time since Nov. 24 as investors demanded more to hold longer maturities.
‘Downside Risk’
Treasuries gained earlier after International Monetary Fund Managing Director Dominique Strauss-Kahn said advanced economies are in a “depression.”
“The worst cannot be ruled out,” Strauss-Kahn said Feb. 7 in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”
The U.S. lost 598,000 jobs in January, the most since December 1974, a Labor Department report showed Feb. 6. General Motors Corp., trying to cut enough costs by a March 31 deadline to keep $13.4 billion in U.S. aid, is readying a plan to fire thousands of employees, people familiar with the situation said.
U.S. stock-index futures fell after Geithner delayed the announcement of the Obama administration’s financial-recovery plan amid talks about whether to construct a so-called bad bank to buy toxic assets, perhaps in cooperation with private investors, such as hedge funds. Futures on the Standard & Poor’s 500 Index expiring in March dropped 0.7.
Mortgage Spread
Instead of buying long-term Treasuries, Fed policy makers are focusing on a program to purchase $200 billion in consumer and small-business loans and on a plan to buy $600 billion in home-finance debt, according to people familiar with the deliberations.
Yields indicate the central bank hasn’t fully thawed credit markets after cutting the benchmark interest rate to a range of zero to 0.25 percent and pumping money into the financial system.
Average 30-year fixed mortgage rates climbed to 5.25 percent in the seven days ended Feb. 5, from 4.96 percent three weeks earlier, according to loan finance company Freddie Mac.
Rates are about 2.25 percentage points higher than 10-year Treasury yields, widening from 1.64 percentage point five years ago.
The London interbank offered rate, or Libor, for three-month dollar loans, was 1.23 percent today, up from 1.08 percent on Jan. 14.
The real yield, or what investors get from 10-year notes after inflation, was 2.74 percent. Consumer prices rose 0.1 percent for all of 2008, after increasing 4.1 percent the previous year, Labor Department figures show.
