BLBG:Treasury Yield Is 9 Basis Points From Low on Greece
Treasury 10-year yields were nine basis points from the record low after German Finance Minister Wolfgang Schaeuble said a Greek election would be a referendum on whether the country retains the euro.
U.S. securities rallied 2.7 percent in the two months ended yesterday, based on Bank of America Merrill Lynch data, as Europe’s debt crisis drove demand for the relative safety of Treasuries. Investors tracking the MSCI All-Country World Index of stocks lost 7.4 percent, including reinvested dividends. Traders are dropping bets the economy will be strong enough for the Federal Reserve to raise interest rates before its target date of 2014, yields indicate.
“Bond sentiment is very strong,” 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. “Stock market sentiment has collapsed. The flight to quality isn’t over.”
Benchmark 10-year yields were little changed at 1.76 percent as of 6:55 a.m. in London, according to Bloomberg Bond Trader data. The record low was 1.67 percent set Sept. 23. The price of the 1.75 percent security due in May 2022 was 99 7/8.
Seven-year notes yielded 1.18 percent, versus 1.1679 percent set earlier this week, which was the least ever.
Japan’s 10-year yield declined two basis points, or 0.02 percentage point, to 0.83 percent. The rate was as low as 0.825 percent, the least since October 2010 when it reached 0.82 percent. The last time yields were lower before that was 2003.
Greece’s inability to form a government is driving concern the country will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since 2010, pushing borrowing costs higher and potentially leading the nation to leave the euro area. Greek 10-year yields jumped to 29.40 percent yesterday from 21.13 percent a month earlier.
‘Accept the Conditions’
“If Greece -- and this is the will of the great majority - - wants to stay in the euro, then they have to accept the conditions,” Schaeuble told reporters yesterday in Brussels. “Otherwise it isn’t possible.” An election may be held as soon as June 10.
Thirty-day federal funds futures contracts for delivery in November 2014 yielded 0.505 percent, indicating investors expect the central bank to raise its benchmark interest rate a quarter point by then.
In March, traders were betting the increase would come as soon as December 2013.
The Fed cut its target for the federal funds rate, which banks charge each other for overnight loans, to a range of zero to 0.25 percent in December 2008. It repeated in its latest statement April 25 that economic conditions will probably warrant keeping the target low at least through late 2014. Policy makers are scheduled to release the minutes of the meeting today.
Ineffective Growth Policies
Yields are at almost the lowest levels ever because policy makers have been unable to boost economic growth, according to economist Paul Krugman.
“I don’t actually buy the flight-to-quality story, or at least it’s way overstated,” Krugman, a Nobel laureate economist and professor at Princeton University, said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We’re all looking like we’re heading for lost decades, which means that policy interest-rates are going to stay close to zero for a really long time.”
Japan’s so-called lost decade of economic stagnation began in the 1990s.
The size of the U.S. publicly traded debt increased to a record $10.4 trillion in April, according to the Treasury Department.
Housing Starts, Output
Housing starts and industrial production rose in April, government and central bank reports will show today, according to Bloomberg News surveys of economists. The U.S. unemployment rate has been more than 8 percent since February 2009.
Ten-year yields are about a quarter of the 50-year annual average of 6.5 percent.
Through last week, investors had offered $3.18 for every dollar of notes and bonds auctioned this year, the most since the government began releasing the data in 1992. China, the largest foreign U.S. creditor, increased its holdings of Treasury debt by 1.3 percent in March to $1.17 trillion, U.S. government data 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.
