BLBG:Treasuries Advance After Greek Leaders Fail to Agree on Economic Measures
Treasuries rose for the first time in three days after Greek leaders failed to agree on economic measures needed to secure a second aid package, boosting investor appetite for the relative safety of U.S. debt.
Demand for a haven from Europe’s fiscal crisis has sent U.S. Treasuries surging in the past year, with debt due in 10 years or longer returning 30 percent. The gain is second only to Ireland among 144 government bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, after accounting for currency changes. The Treasury is scheduled to auction $16 billion of 30-year bonds today.
“Treasury yields are kept at unrealistically low levels because of ongoing concern about the debt crisis in the euro region,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “There are still hurdles ahead as far as the Greek debt situation is concerned, and that will limit a rise in bond yields.”
The U.S. 10-year yield fell two basis points to 2.01 percent at 6:11 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 gained 5/32, or $1.56 per $1,000 face amount, to 99 30/32.
Schnautz said investors should bet for the yield difference between two- and 10-year Treasuries to widen beyond today’s 175 basis points as economic growth accelerates. The U.S. is ranked AAA by Moody’s Investors Service and Fitch Ratings, while Standard & Poor’s ranks it AA+.
‘Issues Outstanding’
Greek Finance Minister Evangelos Venizelos said there is still uncertainty on the terms of a 130 billion-euro ($173 billion) rescue package for Greece before a meeting of euro-area finance ministers today.
“There are issues outstanding that must be resolved by the time the eurogroup meets,” Venizelos told reporters in Athens after a meeting with Prime Minister Lucas Papademos and European Union and International Monetary Fund officials that ended just before 6 a.m. in Athens. “As the prime minister said, there is agreement on all the issues bar one.”
U.S. 10-year Treasuries yielded three basis points more than their German peers before the European Central Bank announces its policy decision today. The ECB will keep the benchmark interest rate at a record low of 1 percent, according to all but two of 57 economists in a Bloomberg News survey.
The 30-year U.S. bonds that investors will bid for today yielded 3.15 percent in pre-sale trading, versus the record low auction yield of 2.925 percent set in December.
Corporate Bonds
At the previous sale in January, traders submitted offers to buy 2.6 times the amount of available debt, versus the average of 2.66 percent for the past 10 monthly auctions.
Indirect bidders, the group that includes foreign central banks, purchased 31.9 percent of the debt. Direct bidders, non- primary dealers buying for their own accounts, bought 7.2 percent, the least in 10 months.
The U.S. will announce today the size of a 30-year sale of Treasury Inflation Protected Securities scheduled for Feb. 16. The auction will probably be for $10 billion, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance. The money will be so-called new cash because the sale doesn’t coincide with any maturing debt, according to Wrightson.
Company bonds are poised to gain because they offer higher yields than government securities, Anthony Valeri, a fixed- income strategist at LPL Financial LLC in San Diego, wrote in a report dated yesterday.
“Corporate bond sectors have the potential to have the best return in 2012,” according to LPL, which gives investment advice and brokerage services to 12,500 financial advisers.
Relative Returns
Company debt in the U.S. has returned 2.4 percent this year as of yesterday, according to Bank of America Merrill Lynch data. An index of the securities yields 2.97 percentage points more than Treasuries, the data show.
U.S. government debt has handed investors a 0.4 percent loss this year. Still, they outperformed U.K. and German securities which declined 1.6 percent and 0.8 percent respectively. TIPS gained 1.6 percent, the indexes indicate. The MSCI All-Country World Index of stocks returned 9.5 percent in the period after accounting for reinvested dividends.
The Federal Reserve is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.
Fed Purchases
The central bank is scheduled to buy as much as $5 billion of securities due from February 2018 to November 2019 today under the plan, according to the New York Fed’s website.
A Labor Department report today will show initial claims for jobless insurance were little changed last week at 370,000, below last year’s average of 409,000, according to a Bloomberg News survey. U.S. gross domestic product will expand 2.3 percent in 2012, versus 1.7 percent in 2011, the surveys show.
Economic growth is slow enough to make Shinji Kunibe, chief portfolio manager for fixed-income investment in Tokyo at Nissay Asset Management Corp., bullish on Treasuries.
“Yields will gradually decline as developed economies linger at low growth rates,” he said. Kunibe said he may buy if 10-year yields rise past 2 percent. Nissay manages the equivalent of $70 billion.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@hotmail.com; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
