BLBG:Treasuries Snap Decline on Concern Greece Respite From Crisis Is Temporary
Treasuries snapped a three-day decline on speculation Europe’s rescue package for Greece won’t solve the region’s debt crisis, keeping alive investor appetite for the relative safety of U.S. securities.
Demand for a haven as European governments struggle to control spending has sent U.S. Treasuries surging in the past 12 months, with debt due in 10 years or longer returning 29 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 $35 billion of five-year notes today.
“I don’t think concerns over Europe have been solved,” said Masazumi Fukuoka, a senior dealer at the Singapore branch of Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly traded lender. “If yields rise, that will be a chance to buy Treasuries.” Fukuoka said he’s favoring German debt over Treasuries because bunds will be the main beneficiary of European demand for safety.
U.S. 10-year rates were at 2.07 percent as of 6:43 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security maturing in February 2022 changed hands at 99 13/32.
Ten-year bunds yield eight basis points less than same- maturity Treasuries. In November, the German securities yielded 34 basis points more than the U.S. notes.
Japan’s 10-year yields increased 1 1/2 basis points, or 0.015 percentage point, to 0.975 percent. It has risen from this year’s low was 0.935 percent set Jan. 16.
Second Bailout
Europe is still struggling to avoid the threat of default as investors warn Greece will soon risk violating the terms of its second bailout it was granted yesterday. Even with investors and central bankers helping relieve the debt burden, economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver amid a fifth year of recession.
Treasuries fell yesterday as the approval of the bailout package reduced demand at the U.S. government’s auction of $35 billion in two-year securities. Investors bid for 3.54 times the amount of available debt, versus 3.75 in January.
Yields (USGG10YR) on 10-year debt reached the highest level in almost a month. They are still more than a percentage point below their five-year average on speculation the Federal Reserve will maintain efforts to stimulate the economy.
Stocks will probably beat bonds this year, said Gary Thayer, chief macro strategist at Wells Fargo Advisors LLC in St Louis, Missouri. The company is the third-largest brokerage in the U.S., according to its website.
Under Pressure
“There’s not much income that’s earned” from debt, Thayer said yesterday on Bloomberg Radio’s “Taking Stock” with Pimm Fox and Courtney Donohoe. “If we do see the economies of the world get better, bonds could some under some downward pressure.”
Sales of existing homes in the U.S. rose for a fourth month in January, based on a Bloomberg News survey of economists before the National Association of Realtors reports the figure today.
Investors have increased bets on inflation to a six-month high. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.33 percentage points today, the most since Aug. 11. The 10-year average is 2.14 percentage points.
Five-year inflation swaps, which allow investors to exchange fixed interest rates for returns equivalent to the consumer price index, climbed to 2.44 percent yesterday, the most since July 28, according to data compiled by Bloomberg. The average for the past decade is 2.33 percent.
Note Auctions
The five-year notes being sold today yielded 0.94 percent in pre-sale trading, versus 0.899 percent at the prior auction sale on Jan. 25. The record low for the monthly sales was 0.88 percent in December.
Investors bid for 3.17 times the amount offered in January, the most since May. Direct bidders, non-primary dealers buying for their own accounts, purchased 15.1 percent, the most in 14 months. Indirect bidders, the category of investors that includes foreign central banks, bought 43.4 percent of the notes, while the 10-sale average is 43.8 percent.
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 buy as much as $2 billion of securities due from February 2036 to February 2042 today under the program, according to the New York Fed’s website.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
