BLBG:Treasuries Fall, Snapping Five-Day Gain, Before Auction
Treasuries weakened for the first time in six days on speculation tumbling yields will erode demand when the U.S. government auctions $21 billion of 10-year securities today.
America’s debt securities extended their decline after Germany got bids for less than the maximum target at a sale of new benchmark 10-year bunds. Yields on U.S. 10-year notes dropped yesterday below 2 percent for the first time in more than four weeks as Europe’s sovereign-debt crisis pushed Spanish and Italian bond yields higher.
“We are witnessing profit taking after the huge rally of the last few sessions,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “Technicals are at play as well, as we are at the crucial 2 percent level.”
Yields on benchmark 10-year notes increased three basis points, or 0.03 percentage point, to 2.01 percent at 6:44 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 fell 1/4, or $2.50 per $1,000 face amount, to 99 7/8. The yields slid yesterday to 1.96 percent, the lowest level since March 7.
Two-year note yields increased one basis point to 0.30 percent today. The extra yield 10-year notes offer over two-year notes shrank yesterday to 1.67 percentage points, the narrowest in a month. The 10-year note yields are 88 basis points below the rate of consumer-price inflation.
Bollinger Bands
Benchmark Treasury yields touched 1.99 percent today, matching the so-called lower Bollinger level. Bollinger bands 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.
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 effort to replace $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs. The U.S. central bank is also due to release its Beige Book business survey today.
Treasuries rallied yesterday as Spanish 10-year yields 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 yields widened to 4.37 percentage points today, the most since November, before narrowing. An announcement by Spain’s Prime Minister Mariano Rajoy this week that he would cut an additional 10 billion euros ($13.1 billion) in education and health spending failed to ease concern that the nation will become the fourth member of the euro area 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 billion in assets and is Taiwan’s third-largest life insurer. “The Spanish issue is larger than Greece.” Tseng said yields of 2 percent to 2.1 percent would prompt him to buy.
Ten-year Treasuries yield 22 basis points more than similar-maturity debt in Germany, reflecting demand for bunds because of Europe’s fiscal crisis. The spread widened to 49 basis points on April 3, the most since January 2011.
Germany sold bunds due in July 2022 at a record-low average yield of 1.77 percent. The nation received bids for 4.11 billion euros ($5.40 billion) of the securities, compared with a maximum sales target of 5 billion euros, according to a Bundesbank statement.
The 10-year U.S. Treasuries scheduled for sale today yielded 2.025 percent in pre-auction trading, compared with 2.076 percent at the previous offering March 13.
Auction Demand
Investors bid for 3.24 times the amount of debt offered last month, compared with 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 43.1 percent.
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 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 30-year bonds surged 4.1 percent, the figures show.
To contact the reporters on this story: David Goodman in London at Dgoodman28@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
