BLBG:Treasuries Fall, Snapping Five-Day Gain Before Auction
Treasuries fell, snapping a five- day rally, on speculation tumbling yields will erode demand when the government sells $21 billion of 10-year debt today.
The extra yield 10-year notes offer over two-year securities touched 1.67 percentage points yesterday, the least in a month. The Bollinger band technical indicator showed the slide in rates is poised to stop. Treasury prices, which move inversely to yields, rallied yesterday as Europe’s debt crisis sent Spanish and Italian bond rates surging.
The yield on Treasuries due in February 2022 rose two basis points to 2 percent as of 1:53 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security fell 5/32, or $1.56 per $1,000 face amount, to 100. The rate slid to 1.96 percent yesterday, a level not seen for five weeks. The yield is negative 90 basis points, or negative 0.9 percentage point, today after accounting for consumer price increases.
“I don’t want 10-year notes at yields below 2 percent,” said Tsutomu Komiya, who helps oversee the equivalent of $111 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage. “They’re expensive.” Komiya said he’s less confident in his year-end rate forecast of 2.5 percent because of the European crisis.
Benchmark Treasury rates touched 1.99 percent today, matching the so-called lower Bollinger level. The bands determined by the technical indicator gauge volatility by plotting standard deviations above and below a moving average. Analysts use them to determine a probable range for a rate or security.
Fed Sales
The Federal Reserve is scheduled to sell as much as $8.75 billion of Treasuries due from July 2012 to January 2013 today, according to the New York Fed’s website. The sales are part of the central bank’s efforts to replace $400 billion of shorter- term debt in its holdings with longer maturities to hold down borrowing costs.
Treasuries rallied yesterday as Spanish 10-year rates climbed 22 basis points to 5.98 percent. Italy’s increased 23 basis points to 5.69 percent.
The difference between Spanish and German 10-year rates widened to 4.33 percentage points, the most since November. The announcement April 9 by Spain’s Prime Minister Mariano Rajoy that he would cut an additional 10 billion euros ($13 billion) in education and health spending failed to ease concern that the nation will become the fourth euro member to need a bailout.
Spanish Concern
“Treasury rates may go down for the next one or two weeks,” said Will Tseng, who trades U.S. bonds at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $52.1 billion in assets and is Taiwan’s third-largest life insurer. “The Spanish issue is larger than Greece.” Tseng said yields in a range of 2 percent to 2.10 percent would prompt him to buy.
Greece carried out the biggest sovereign debt restructuring in history this year.
Ten-year Treasuries yielded 36 basis points more than same- maturity debt in Germany, reflecting demand for bunds because of Europe’s fiscal crisis. The gap widened to 49 basis points on April 3, the most since January 2011.
German two-year yields dropped to 0.091 percent, the lowest level since Bloomberg began collecting the data in 1990. The rate slid below those on similar-dated Japanese notes for the first time, based on closing levels.
Japan’s 10-year rate was unchanged today at 0.95 percent. It slid to 0.935 percent earlier, matching this year’s low.
Auction Looms
The 10-year Treasuries scheduled for sale today yielded 2.01 percent in pre-auction trading, compared with 2.076 percent at the last auction on March 13.
Investors bid for 3.24 times the amount of debt offered last month, versus the average of 3.13 for the past 10 auctions.
Indirect bidders, the group that includes foreign central banks, bought 38.6 percent of the debt, versus the 10-sale average of 43.08.
The U.S. sold $32 billion of three-year notes yesterday, with the class of bidders that includes foreign central banks taking 40 percent of the debt, the most since August.
The Treasury Department plans to auction $13 billion of 30- year bonds tomorrow, completing this week’s sales of coupon- bearing debt totaling $66 billion.
U.S. three-year notes have returned 0.3 percent this month, according to Bank of America Merrill Lynch indexes. Ten-year securities rallied 2.1 percent, and so-called long bonds surged 4.1 percent, the figures show.
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
