BLBG: Two-Year Treasuries Snap Two Days of Declines as Stocks Drop
By Keith Jenkins and Yasuhiko Seki
April 21 (Bloomberg) -- Treasury two-year notes snapped a two-day decline as European stocks fell and Greece began talks on activating a 45 billion-euro ($61 billion) emergency aid package.
The benchmark 10-year yield dropped for a second day after the International Monetary Fund called Greece’s fiscal crisis a “wake-up call” on sovereign-debt risks. The Stoxx 600 Index of European shares fell 0.4 percent. The yield premium investors demand to hold Greek 10-year debt rather than German bunds climbed to more than 500 basis points.
“Treasuries are in thrall to the gyrations in equity markets,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “We’re following the yo- yoing in equities.”
The two-year note yield was little changed at 1.01 percent as of 7:36 a.m. in New York, according to BGCantor Market Data. The benchmark 10-year note yield fell 1 basis point to 3.79 percent. The 3.625 percent security due February 2020 climbed 1/32, or 31 cents per $1,000 face amount, to 98 21/32.
Treasuries fell earlier after Apple Inc. said yesterday second-quarter profit almost doubled and Canada’s central bank said faster-than-expected economic growth and inflation will spur rate increases.
Concern the fiscal crisis in Greece, which has the European Union’s biggest budget deficit, would slow the global economic recovery has helped send 10-year yields down from the 4.01 percent they reached on April 5, the highest level since October 2008.
Low Rates ‘Important’
Federal Reserve Bank of Chicago President Charles Evans said two days ago that while the U.S. recession is “definitely over,” unemployment will take time to decline and a low interest-rate policy is “very important” for now.
Futures on the CME Group Inc. exchange show a 64 percent chance the U.S. central bank will raise its target rate for overnight bank lending by at least a quarter-percentage point by its December meeting, down from 78 percent a month ago. The Fed has kept the rate in a range of zero to 0.25 percent since December 2008.
The U.S. government will next week sell $42 billion in two- year notes, $41 billion in five-year securities, $32 billion in debt maturing in seven years and $10 billion in five-year Treasury Inflation Protected Securities, according to Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York. The firm is one of the 18 primary dealers that are required to bid at Treasury auctions.
Emerging-Market Debt
President Barack Obama has boosted marketable U.S. debt to a record $7.76 trillion, Treasury figures show. Obama’s proposed budget calls for a $1.6 trillion budget deficit in 2010, up from last year’s record $1.4 trillion gap.
Investors should buy emerging-market debt rather than bonds of developed countries because advanced economies are poised for a period of slower growth, according to Pacific Investment Management Co., which manages the world’s largest bond fund.
Increased taxation, regulation and government intervention in business, combined with financial companies’ efforts to reduce risk after the credit crisis, will drive investors from developed economies, Brian Baker, Pimco Asia Ltd.’s chief executive officer, said in Hong Kong yesterday.
“This all leads to a shift away from growth being driven by the G-3 countries to a more balanced economic world,” Baker said at the FundForum Asia conference. “Investors need to recognize that the investment opportunities are not going to necessarily be in the U.S., the U.K. and Europe any longer.”
Pimco increased holdings of emerging-market debt to the most since 2008 last month while reducing its portfolio of developed nations’ non-dollar bonds.
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
