BLBG:Treasury 30-Year Bonds Drop on Europe Deal, U.S. Recovery Signs
Treasury 30-year bonds fell for a second consecutive week as a European agreement for closer fiscal union reduced the haven appeal of U.S. debt and reports showed the economic recovery strengthening.
Yields also rose on benchmark 10-year securities as the government prepared to sell $78 billion in notes, bonds and inflation-linked debt in four auctions next week. The Federal Reserve will hold its last policy meeting of the year Dec. 13.
“We are seeing some concession for supply, and the market is a bit more optimistic on Europe,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade directly with the Fed. “Any selloff is limited because Europe’s troubles still hang over our heads.”
Yields on 30-year bonds increased eight basis points, or 0.08 percentage point, to 3.11 percent, according to Bloomberg Bond Trader prices. The price of the 3.125 percent securities maturing in November 2041 dropped 1 20/32, or $16.25 per $1,000 face amount, to 100 11/32. Yields touched 2.99 percent yesterday and the day before, the lowest level since Nov. 30.
Benchmark 10-year note yields advanced three basis points to 2.06 percent after touching 1.96 percent yesterday, the least since Nov. 28. Shorter-term securities rose this week, with two- year yields dropping three basis points to 0.22 percent.
Gain in Stocks
The Standard & Poor’s 500 Index advanced 0.9 percent, the euro was little changed at $1.3386, and crude oil futures dropped 1.3 percent to $99.83 a barrel in New York.
Nineteen months after European leaders forged their first plan to contain debt turmoil, a fifth comprehensive effort added 200 billion euros ($268 billion) to the region’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.
“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, a primary dealer. “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 before deciding whether to go ahead with its threat this week to cut the credit rating of 15 euro-region nations including Germany.
S&P on Summit
“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 yesterday.
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 pays 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, increased to 0.54 percent, while the rate on U.S. bills remained at zero.
Demand for a refuge from sovereign-debt turmoil 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.
Consumer Confidence
Bonds slid yesterday 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.
Initial jobless claims fell by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed earlier this week.
“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.”
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 Treasury Department said. The government will also sell $12 billion of five-year Treasury Inflation Protected Securities on Dec. 15 and offer two-, five- and seven-year notes the following week.
‘Onslaught of Supply’
“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.
All of 36 economists in a Bloomberg News survey predict the central bank next week will keep its target lending rate at zero to 0.25 percent, where it has been since December 2008.
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 63 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
