BLBG: Treasury Two-Year Yield Advances From Record Low on European Bank Optimism
Treasury two-year note yields rose from a record low as banks sought less cash from the European Central Bank than economists forecast in a sign the financial institutions are stronger than investors had estimated.
The yield fell earlier as economists said the nonfarm payrolls report later this week will show employers eliminated 125,000 jobs in June. U.S. debt was poised for the biggest first-half rally in 15 years on concern the European sovereign- debt crisis will get worse and America’s recovery is stalling.
“Our market is a little overbought given the strength of the rally we’ve seen,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “A lot of the nervous buying and the month-end buying is done for now. Still, as soon as yields spike, some buyers will come back in. They just need to recharge.”
The yield on the two-year note increased two basis points, or 0.02 percentage point, to 0.62 percent at 11:03 a.m. in New York, according to BGCantor Market Data. It earlier touched the all-time low of 0.5856 percent. The price of the 0.625 percent security maturing in June 2012 fell 1/32, or 31 cents per $1,000 face amount, to 100.
Treasuries have returned 5.8 percent in the first six months of 2010, Bank of America Merrill Lynch indexes show. That’s the biggest rally since 1995, when the Federal Reserve was preparing to cut interest rates to encourage growth. The Standard & Poor’s 500 Index has dropped 6.6 percent during the first half.
Quarterly Gain
Over the past three months, U.S. debt has gained 4.7 percent in the best quarter since the depths of the financial crisis at the end of 2008.
Yesterday the two-year note yield broke the prior record low of 0.6044 percent, which was reached on Dec. 17, 2008, after the Fed cut its target rate for overnight lending between banks to a range of zero to 0.25 percent.
Two-year notes fell today as the European Central Bank said it will lend banks 131.9 billion euros ($161.5 billion) for three months. Economists expected banks to look for 200 billion euros, according to the median of seven estimates in a Bloomberg News survey.
“It was quite a surprise, and it’s taken away a bit of the risk aversion,” said Glenn Marci, a fixed-income strategist in Frankfurt at DZ Bank AG, Germany’s biggest cooperative lender. “The market is reassessing its mood.”
Financial institutions tomorrow need to repay 442 billion euros in 12-month funds, the biggest amount ever awarded by the ECB and a major part of its effort last year to contain the financial crisis.
Ten-Year Yield
Ten-year note yields advanced one basis point to 2.96 percent after sliding below 3 percent yesterday for the first time since April 2009.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said global financial market returns stand at the threshold of mediocrity.
Bond markets pricing in depression and yielding less than 3 percent are a forerunner of returns to come, Gross wrote in his July investment outlook today on the Newport Beach, California- based company’s website. Stocks haven’t adjusted to the slower growth that will come from deleveraging, regulation and de- globalization, he wrote.
U.S. companies increased employment by 13,000 jobs in June after adding a revised 57,000 positions in the previous month, ADP Employer Services reported today. The median forecast of 36 economists in a Bloomberg News survey was for a rise to 60,000 from a previously reported 55,000.
May Payrolls Report
The Labor Department reported on June 4 a lower-than- expected 431,000 new jobs in May that included a 411,000 jump in government hiring of temporary workers for the 2010 census. The payrolls report for this month is due on July 2.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, fell to 1.89 percentage points, from this year’s high of 2.49 percentage points in January.
“The market is starting to become more pessimistic about the growth outlook next year, probably not yet playing double- dip, but at least quite a weak economic scenario,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “It will depend very much on the labor market report whether we will keep these low yield levels.”
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net
