BLBG:Treasuries Set for Weekly Advance on Spain’s Rating Cut
Treasuries were set to complete a six-week advance, the longest series of gains since June, as Spain’s rating cut by Standard & Poor’s renewed concern Europe’s debt crisis is deepening, boosting demand for safer assets.
Yields on two- and five-year U.S. notes reached the lowest level since February before Spain auctions securities next week. The Federal Reserve will sell today as much as $8.75 billion of Treasuries maturing in June 2014 to April 2015 as part of a $400 billion program to replace shorter-term debt in its portfolio with longer-dated bonds to curb borrowing costs.
“Europe’s debt crisis will probably enter a second round,” said Akira Takei, head of the international fixed- income department at Mizuho Asset Management Co. in Tokyo, which oversees about $41 billion. “There is a move toward risk aversion, resulting in the buying of Treasuries.”
Yields on benchmark 10-year notes lost three basis points, or 0.03 percentage point, to 1.91 percent at 1:29 p.m. Tokyo time, according to Bloomberg Bond Trader prices. The 2 percent note maturing in February 2022 added 1/4, or $2.50 per $1,000 face value, to 100 26/32. Ten-year Treasury rates have fallen five basis points since April 20.
Two-year rates fell to as low as 0.25 percent today, a level unseen since Feb. 10. The five-year yield slid to 0.80 percent, the lowest since Feb. 16.
Ten-year yields may drop to 1.5 percent in the next six months, Mizuho’s Takei said. He is increasing holdings of Treasuries maturing in more than 10 years, he said.
Spanish Debt
S&P lowered Spain’s long-term sovereign credit rating by two levels to BBB+ from A with a negative outlook. With the nation’s budget trajectory likely to worsen, the country will probably need to provide more fiscal support to banks, S&P said in a statement yesterday.
Spain, the fourth-biggest economy in the euro region, is scheduled to auction notes maturing in 2015 and 2017 on May 3. The nation’s 10-year bond yields climbed to 6.16 percent last week, the highest this year, and were at 5.83 percent yesterday.
The yield on Japan’s benchmark 10-year debt touched 0.9 percent, the lowest since October 2010. The Bank of Japan (8301) today expanded its asset-purchase fund to 40 trillion yen ($494 billion) from 30 trillion yen, according to a statement released in Tokyo today. It also extended the maturity of bonds it buys to three years from a two-year limit.
U.S. Growth
Demand for Treasuries was limited before U.S. data today forecast to show the world’s largest economy expanded at an annualized rate of 2.5 percent in the first quarter.
“As long as the economy continues to grow at least at the lower end of a 2 to 3 percent range, concern about the economic outlook will ease,” said Hideki Shibata, a senior strategist for rates and foreign exchange at Tokai Tokyo Research Center Co. “Treasury yields are on a path of mild gains.”
U.S. government bonds have returned less than 0.1 percent this year after a 9.8 percent climb last year, according to a Bank of America Merrill Lynch gauge. The S&P 500 (SPX) index of U.S. shares has handed investors a 12 percent gain this year, including reinvested dividends.
The U.S. government on May 2 is scheduled to announce details of its bond auctions. It will probably sell $32 billion of three-year notes on May 8, $24 billion of 10-year securities the next day and $16 billion of 30-year debt on May 10, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
“We see little value in five-year Treasuries yielding under 0.85 percent,” rates strategists at BNP Paribas SA wrote in a research note today. “We like selling at 0.80 percent, targeting 1.00 percent.”
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
