BLBG: Treasury Notes Decline as U.S. Readies Auctions for Next Week
Treasury notes fell amid speculation the U.S. will sell a record amount of debt next week, pushing investors toward longer-term debt.
Notes due in five years or less led the declines before the government announces tomorrow the size of next week’s auctions of two-, five- and seven-year debt. The likely total is $97 billion, according to Wrightson ICAP LLC. The difference in yield between two- and 10-year notes shrank to 1.76 percentage points, the smallest gap in three weeks, as investors favored longer-maturity debt ahead of the supply.
“The front end has seen a back-up in rates,” said Alex Li, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, one of the 16 primary dealers that trade with the Federal Reserve. “The market is looking forward to the supply to be announced tomorrow, so it’s putting pressure on the front end of the yield curve.”
Two-year note yields rose seven basis points, or 0.07 percentage point, to 0.92 percent at 11:07 a.m. in New York, according to BGCantor Market Data. The price of the 0.875 percent security due in January 2011 fell 1/8, or $1.25 per $1,000 face amount, to 99 29/32.
Benchmark 10-year note yields increased three basis points to 2.68 percent. Yields on 30-year bonds decreased four basis points to 3.44 percent.
Foreclosure Plan
President Barack Obama released his administration’s $75 billion housing program aimed at stemming home foreclosures. It will help as many as 5 million homeowners refinance conforming loans owned or guaranteed by Fannie and Freddie, according to a fact sheet released by the White House. Obama signed a $787 billion economic-stimulus bill yesterday, and Treasury Secretary Timothy Geithner last week outlined a plan to rescue the financial system.
“Obviously everyone will be watching the Obama-Geithner foreclosure plan,” said Martin Mitchell, head of government bond trading at the Baltimore unit of Stifel Nicolaus & Co.
Treasury notes remained lower after a Fed report showed U.S. industrial production fell in January for the sixth time in seven months. Builders broke ground last month on the fewest houses since records on the data began in 1959, a Commerce Department report showed.
Treasuries lost 2.1 percent so far in 2009, according to Merrill Lynch & Co.’s U.S. Treasury Master index, on speculation investors will demand higher yields to lend to the government.
‘Higher Prices’
Yields on the benchmark 10-year note dropped earlier to 2.61 percent, the lowest level since Jan. 28, after General Motors Corp. said it needs more money from the government, fueling concern the global economic slowdown is spreading. Ten-year yields slipped to a record 2.035 percent Dec. 18 and have averaged 4.55 percent this decade.
The Fibonacci series of numbers, a technical indicator some investors use to identify targets, indicates 10-year yields need to hold below 2.60 percent if they are to decline further.
That level is a 50 percent retracement of the rise in yield from 2.14 percent on Jan. 15 to 3.05 percent on Feb. 9. A move past one level in the series indicates the rate may fall or rise to another level. The next target is 2.49 percent.
“The long-end outperformance takes us to within a hair’s breadth of our target of 2.60% in the 10-year note,” strategists at primary dealer UBS Securities LLC led by William O’Donnell wrote in a note this morning. “Technical momentum still looks supportive of higher prices.”
‘Supply Concerns’
The government will sell $41 billion in two-year notes, $31 billion in five-year notes and $25 billion in seven-year notes next week, Wrightson ICAP forecast. The Jersey City, New Jersey- based firm specializes in government finance.
The Treasury sold a record $67 billion in notes and bonds last week, prompting Western Asset Management, the Pasadena, California-based investor with $513.3 billion in fixed-income assets, to say future debt sales will probably send long-term yields higher.
“Supply is on people’s minds on a consistent basis,” said Richard Bryant, a trader of 30-year bonds at Citigroup Global Markets Inc., another primary dealer. Today’s move is “positioning ahead of supply.”
Federal Reserve Bank of Cleveland President Sandra Pianalto said the central bank’s new $1 trillion program to prop up markets for auto loans and other debt will make a “big difference” in strengthening the U.S. economy. The Term Asset- Backed Securities Loan Facility, known as the TALF, is likely to start operating “within the next few weeks,” Pianalto said in a speech today in Columbus, Ohio.
Bernanke Speech
Fed Chairman Ben S. Bernanke is scheduled to speak today on central bank programs to spur the economy. The Fed is also scheduled to issue the minutes of its Jan. 28 meeting.
Investors were more optimistic about government debt this week than last, according to a weekly poll of clients by JPMorgan Chase & Co. The number of investors betting on a rise in note prices jumped to 36 percent from 20 percent last week. Investors forecast rising prices over falling prices by the most since the week of Nov. 17. In the following month after that survey, the 10-year yield fell 1.70 percentage points.
The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, narrowed to 0.94 percentage point from 4.64 percentage points in October. The gap averaged 0.27 percentage point from 2002 through 2006, before the credit crisis began in 2007.
