BLBG:Treasuries Hold Advance as Europe Debt Concern Boosts Demand for Safety
Treasury 10-year note yields fell to a more than two-month low as prospects for credit downgrades of France and Spain along with the death of North Korean leader Kim Jong Il boosted demand for U.S. government debt as a haven.
Fitch Ratings last week lowered France’s credit outlook and said it may cut Spain’s grade as the nation prepare for bill sales this week. U.S. bonds gained for a second day as Asian stocks extended losses after North Korean state television confirmed that Kim died. The Treasury begins auctions of two-, five- and seven-year notes today.
“Kim Jong Il’s death added to uncertainty in the markets, which have already been risk averse because of the European debt crisis,” said Masaru Hamasaki, Tokyo-based chief strategist at Toyota Asset Management Co., which manages the equivalent of $24 billion, including Japanese and global government bonds. “Investors are flocking to safety of Treasuries.”
The yield on the 10-year note slid one basis point to 1.83 percent, at 1:14 p.m. in Tokyo from New York last week, according to Bloomberg Bond Trader prices. The 2 percent security due November 2021 increased 1/8, or $1.25, to 101 1/2. The rate matched the the lowest level since Oct. 5.
The benchmark 10-year yield declined 146 basis points, or 1.46 percentage points, this year and fell to a record low of 1.67 percent on Sept. 23.
The MSCI (MXAP) Asia Pacific Index of shares dropped as much as 2.5 percent today.
France is scheduled to sell as much as 7 billion euros ($9.1 billion) of bills today. Spain will auction government securities tomorrow maturing in three and six months.
Fitch Ratings
Fitch reduced its outlook for France’s credit rating to negative from stable on Dec. 16, saying the country is more exposed to the region’s debt crisis than other top-rated euro- zone countries because of its budget deficit and government debt burden. The ratings company separately placed other European nations, including Spain and Italy, on a review for a downgrade.
Moody’s cut Belgium’s credit rating two levels to Aa3 last week. The firm said the European summit this month offered few new measures and didn’t diminish the risk of rating revisions. Standard & Poor’s said on Dec. 5 it expected to conclude a review of euro-area sovereign ratings “as soon as possible” after the Dec. 8-9 summit.
Finance ministers in the euro region will hold a conference call today to discuss 200 billion euros in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at the summit, according to two people familiar with the planning.
No ‘Sell-Off’
“I’m not expecting any material sell-off on Treasuries any time soon,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker. “All hinges on Europe at the moment. We need risk appetite to come back into the market” to see an increase in yields.
U.S. two-year interest-rate swap spreads, a measure of stress in credit markets, were 50 basis points today, hovering around the widest level since Nov. 30, according to data compiled by Bloomberg.
The gap between what banks and the Treasury pay to borrow money for three months, known as the TED spread, reached 57 basis points Dec. 16, the highest level since May 2009.
Treasuries have gained 1.1 percent in the month through Dec. 16, based on Bank of America Merrill Lynch data. German bunds gained 2.7 percent and Japanese bonds increased 0.6 percent, the indexes show.
Bond Returns
U.S. debt due in 10 years or more has returned 30 percent this year, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes.
Japan’s benchmark 10-year yields slid 1.5 basis points to 0.965 percent today, the lowest level since Nov. 24.
The Treasury will offer $35 billion of two-year notes today, and auction the same amount of five-year debt tomorrow, and $29 billion of seven-year securities on Dec. 21. The amounts were unchanged from the last offerings of the maturities in November.
Gains in U.S. debt were limited before data this week that may add to evidence that the world’s largest economy is gaining momentum.
Housing starts in the U.S. increased 1.1 percent last month from October when they declined 0.3 percent, according to economist estimates in a Bloomberg News survey before the Commerce Department releases the data tomorrow. Consumer spending rose for a fifth month in November, adding 0.3 percent, another survey of economists showed before the government report due Dec. 23.
U.S. gross domestic product will expand 2.19 percent next year, compared with 1.55 percent for the Group of 10 nations, Bloomberg surveys of economists show.
“U.S. data have been showing the economy is picking up,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third-largest listed bank. “The yields are far too low given the fundamentals.”
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
