BLBG:Treasuries Drop on U.S. Consumer Confidence, European Agreement
Treasuries fell for the first time in three days as a report showed consumer confidence rose in December more than forecast and European leaders agreed to tighten budget rules and speed the start of a bailout fund.
Yields on benchmark 10-year notes advanced from the lowest level this month as a proposal supported by Germany that bondholders bear losses in financial rescues was dropped from an accord reached during a two-day summit in Brussels. Thirty-year bond yields had a second weekly gain as a rally in stocks reduced demand for a refuge.
“The consumer confidence data was very strong, helping the sentiment in the market,” said Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York. “There is positive sentiment out of the euro zone, and that is weighing on Treasuries.”
Yields on 10-year notes advanced nine basis points, or 0.09 percentage point, to 2.06 percent at 5:18 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities due in November 2021 decreased 26/32, or $8.13 per $1,000 face amount, to 99 14/32.
The 10-year note yields had a weekly increase of three basis points after touching 1.96 percent, the lowest level since Nov. 28. A drop of more than two points in 30-year bonds pushed yields up 11 basis points today to 3.11 percent. They increased eight basis points this week.
The Standard & Poor’s 500 Index advanced 1.7 percent today, extending its five-day rally to 0.9 percent. The euro appreciated 0.3 percent to $1.3386. Crude oil futures rose 1.9 percent to $99.83 a barrel in New York.
European Accord
A fifth comprehensive effort, coming 19 months since euro leaders forged their first plan to contain sovereign-debt turmoil, added 200 billion euros ($267 billion) to Europe’s crisis-fighting capacity and tightened rules to curb future debt. The agreement sped the establishment of a 500 billion-euro rescue fund to next year and dropped a proposal that bondholders shoulder losses in rescues.
“The agreement is a step in the right direction, but it wasn’t enough,” said Sean Murphy, a Treasury trader in New York at Societe Generale SA, one of the 21 primary dealers that trade with the Federal Reserve. “The summit lacked the firepower necessary to take the firm footing out of Treasuries.”
S&P said it’s examining the outcome of the European Union summit ending today before deciding whether to go ahead with its threat this week to cut the credit rating of 15 euro-region nations including Germany.
“We will be studying the implications of the summit and its impact on the growing systemic stresses we identified,” the ratings company said via e-mail today.
S&P on Banks
The European Union’s AAA long-term rating and the rankings of some of the region’s largest banks including BNP Paribas SA, Commerzbank AG and Deutsche Bank AG may also be lowered by S&P.
In a sign financial institutions are facing stress, the TED spread, or the difference between what banks and the U.S. government pay to borrow for three months, climbed to more than 54 basis points, the highest since June 2009. The three-month London interbank offered rate, or Libor, was 0.54 percent, while the rate on U.S. bills remained at zero.
Demand for U.S. debt as Europe’s crisis got worse pushed a gauge of Treasuries due in 10 years or longer up 21 percent in the past six months, the best performance among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, after accounting for currency changes.
U.S. Confidence
Bonds slid today as a report showed confidence among U.S. consumers rose in December to a six-month high. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 67.7 from 64.1 at the end of November. The median estimate of 73 economists surveyed by Bloomberg News called for a reading of 65.8.
The U.S. plans to auction $32 billion of three-year notes on Dec. 12, $21 billion of 10-year debt the next day and $13 billion in 30-year bonds on Dec. 14, the U.S. Treasury Department said yesterday. The government will also sell $12 billion of five-year Treasury Inflation Protected Securities on Dec. 15.
“The market wants to prepare for the onslaught of supply coming, but it’s hard with Europe in the picture,” said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, a brokerage for institutional investors. “Euro leaders are starting to sound like the boy who cried wolf, but you have to believe something will get done.”
The Fed is replacing $400 billion of shorter maturities in its holdings of Treasuries with longer-term debt to cap borrowing costs under a plan announced in September. It bought $2.512 billion of securities due from February 2036 to May 2041 today, according to the New York Fed’s website.
U.S. 10-year note yields will climb to 2.39 percent by the middle of next year, according to the average forecast in a Bloomberg News survey of 64 analysts, with the most recent forecasts given the heaviest weightings.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
