BLBG:Treasuries Decline on Greek Bailout Agreement; Schwab Prefers Corporates
Treasuries declined for a third day after European finance ministers agreed on a second bailout package for Greece aimed at staving off default and keeping the 17-nation euro area together.
Two-year yields reached the highest since October as the Treasury prepared to sell $35 billion of the securities today, the first of three note auctions this week. While government securities have declined in 2012 amid signs the U.S. economic recovery will be sustained, the 10-year yield is still more than a percentage point below its five-year average. Corporate bonds may beat sovereign debt as the economy strengthens, a report by Charles Schwab Corp. said.
“The tendency is that the markets are relieved by the Greek situation and Treasury yields reflect that,” said Viola Stork, a fixed-income strategist at Helaba Landesbank Hessen- Thueringen in Frankfurt. “We’ve seen rather strong data but at the moment the Federal Reserve is keeping a loose monetary policy. As long as we see modest reactions from the Fed, yields will remain anchored at lower levels.”
The 10-year yield rose four basis points, or 0.04 percentage point, to 2.04 percent at 10:14 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent note maturing in February 2022 fell 10/32, or $3.13 per $1,000 face amount, to 99 5/8.
The two-year yield was little changed at 0.29 percent after reaching 0.3 percent, matching the highest since Oct. 28.
Greece Aid
Euro-area finance ministers meeting in Brussels awarded 130 billion euros ($173 billion) in aid to Greece. The plan includes a 53.5 percent writedown for investors in the nation’s bonds, Luxembourg Prime Minister Jean-Claude Juncker told reporters. The euro strengthened for a fourth day, rising 0.1 percent to $1.3254.
European officials also held out the prospect of boosting the backstop for future fiscal emergencies to 750 billion euros from a planned limit of 500 billion euros when a permanent aid fund is paired with the temporary fund starting in July. A summit on March 1-2 may deliver a “significant reinforcement of the euro-area firewall,” Juncker said.
“Treasuries will sell off” said Will Tseng, who trades the securities at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $52.2 billion in assets. “There’s some relief in the market” because of the Greece agreement.
Housing Market
U.S. home sales climbed in January to the highest level since May 2010, economists said before reports this week.
Combined purchases of new and existing houses increased to a 4.97 million annual rate from 4.92 million in December, according to Bloomberg News surveys. Existing (ETSLTOTL) home sales data are scheduled for tomorrow and a report on new homes sales will be published Feb. 24.
“Corporate bonds could continue to outperform in a strengthening economy,” Schwab, which is based in San Francisco and manages $199 billion, said in a report on its website Feb. 17. “Conditions -- and valuation relative to Treasuries --still favor corporate bonds,” according to the note by Rob Williams, the director of income planning, and Kathy A. Jones, a fixed- income strategist.
Treasuries have handed investors a 0.5 percent loss this year, while company debt gained 2.5 percent, according to indexes developed by Bank of America Corp.’s Merrill Lynch unit.
Two-Year Sale
The two-year notes being sold today yielded 0.3 percent in pre-auction trading, compared with 0.25 percent at the previous sale on Jan. 24.
Investors bid for 3.75 times the amount of available debt last month, versus the average of 3.49 for the past 10 auctions. Indirect bidders, the category of buyers that includes foreign central banks, purchased 32.9 percent.
The government is also scheduled to auction $35 billion of five-year notes tomorrow and $29 billion of seven-year securities on Feb. 23.
The Fed 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.
The U.S. central bank is scheduled to sell as much as $8.75 billion of securities due from December 2012 to May 2013 today under the plan, according to the New York Fed’s website. Fed Chairman Ben S. Bernanke has also pledged to keep the target for overnight lending between banks at almost zero until at least late 2014.
Geithner Return
Ten-year yields are 37 basis points above the record low of 1.67 percent and 1.85 percentage points less than the average over the past decade, even after the government increased the publicly traded debt to a record $10.1 trillion. The 10-year yield has averaged 3.41 percent since Feb. 21, 2007.
Timothy F. Geithner, who took over the Treasury Department in the midst of the worst financial crisis since the Great Depression, oversaw an almost doubling of U.S. public debt and presided over the loss of the nation’s AAA rating, has done better for investors than Robert Rubin, while falling short of predecessor Henry Paulson.
Since Geithner assumed office in January 2009, returns on Treasuries have exceeded bonds of other countries by 0.3 percentage point on an annualized rate, according to Bank of America Merrill Lynch index data. That’s less than Paulson’s 7.5 percentage points. Under Rubin, returns on Treasuries lagged behind foreign issues by 1.6 points.
Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, maintained their bearish stance on Treasuries. Ried’s index on the outlook through June slid to 43 for the seven days ended Feb. 17 from 44 the previous week. A figure below 50 shows investors expect U.S. government debt to drop.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
