BLBG:Treasury 30-Year Bonds Gain a Fourth Day on Greek Concern
Treasury 30-year bonds advanced for a fourth day as deepening speculation Greece will leave the euro area boosted demand for the relative safety of U.S. debt.
The yield on 10-year notes were within 11 basis points of a record low as Greek leaders seek to form an interim government that will schedule new elections as early as June 10 after coalition talks collapsed. Treasury yields held above all-time lows before government and central bank reports today that economists say will show housing starts and industrial production rose in April.
“A euro zone exit by Greece cannot be ruled out, which is underpinning Treasuries,” said Michael Leister, a rates strategist at DZ Bank AG in Frankfurt. “What the market is waiting for is some kind of domestic trigger, such as disappointing U.S. data or a more dovish Fed speech to try and test the lows again.”
The 30-year yield fell one basis point, or 0.01 percentage point, to 2.91 percent at 10:44 a.m. London time, after sliding to 2.89 percent, the lowest since Jan. 18. The 3 percent bond due May 2042 rose 5/32, or $1.56 per $1,000 face amount, to 101 25/32, according to Bloomberg Bond Trader prices.
The 10-year yield was little changed at 1.78 percent. The yield dropped to a record 1.67 percent on Sept. 23.
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 rose above 30 percent today for the first time since the nation’s debt was restructured in March.
Euro Referendum
Germany’s Finance Minister Wolfgang Schaeuble said another Greek election would be a referendum on whether the country retains the euro.
“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.”
Treasuries returned 2.7 percent in the past two months, Bank of America Merrill Lynch indexes show, as Europe’s debt crisis worsened. Investors tracking the MSCI All-Country World Index of stocks lost 8.4 percent in the same period.
Traders are dropping bets the U.S. economy will be strong enough for the Federal Reserve to raise interest rates before its target date of 2014.
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.
Federal Funds
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 that meeting today.
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.”
Increasing Debt
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 and industrial production rose in April, government and central bank reports will show today, according to Bloomberg News surveys of economists.
Ten-year yields are about a quarter of the 50-year annual average of 6.71 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 reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
