BLBG:Treasury Yields Are 9 Basis Points From Record On Greece
Treasury yields were nine basis points from the record low on concern Greece will abandon the euro, increasing demand for the relative safety of U.S. debt.
A Greek decision to leave the common currency would bring “collateral damage” and fuel the Treasuries rally, said Richard Clarida, the global strategic adviser at Pacific Investment Management Co., which runs the world’s biggest bond fund. The U.S. is scheduled to sell five-year notes today, after demand approached the most ever at a two-year sale yesterday. European leaders will meet today on the financial crisis.
“If the European Union breaks up and the U.S. has a hard time with its economy, yields will go down,” said Youngsung Kim, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $96.4 billion in assets. Demand for safety may drive 10-year rates to a new low of 1.5 percent, he said.
Ten-year yields were little changed at 1.76 percent as of 6:55 a.m. in London, Bloomberg Bond Trader data show. The price of the 1.75 percent security due in May 2022 was 99 28/32. The record low rate was 1.67 percent set Sept. 23.
Japan’s 10-year yield increased one basis point, or 0.01 percentage point, to 0.865 percent. It slid to 0.815 percent on May 18, the least since 2003.
Dow Jones reported yesterday that former Greek Prime Minister Lucas Papademos said some European states are considering contingency plans for a Greek exit from the shared currency. CNBC quoted Papademos as saying that no preparations are under way in Greece.
Flight to Safety
“If Greece exits, there will be collateral damage,” Clarida said yesterday on Bloomberg Television’s “In the Loop” with Betty Liu. “It will show up in the U.S., it will show up in global stock prices, it will show up in credit spreads,” resulting in a flight to safety that strengthens the dollar and lowers Treasury yields, he said.
The MSCI Asia Pacific Index (MXAP) of stocks dropped 1.7 percent, approaching the lowest level since December.
The cost of insuring corporate and sovereign bonds in Asia and the Pacific from default rose, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced 5.5 basis points to 198 basis points, Credit Agricole SA (ACA) prices show. The index reached a four-month high of 200.3 on May 18, according to data provider CMA. Credit-default swaps are contracts investors use to bet on the creditworthiness of a borrower.
Euro Crisis
Today’s European summit may curb the Treasuries rally, said Tsutomu Komiya, who helps oversee the equivalent of $111 billion as an investor at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage.
“There is merit to Greece remaining in the euro zone,” Tokyo-based Komiya said. “The negotiations will improve. The flight to quality will stop, and Treasury yields will rise.” Ten-year rates will probably be capped at 2 percent in the weeks ahead, he said.
The Fed plans to buy as much as $2 billion of Treasuries due from August 2022 to February 2031 today, according to the Fed Bank of New York’s website. It also plans to snap up as much as $5 billion of securities maturing from May 2018 to May 2020. The purchases are part of a program to replace $400 billion of shorter-term debt in its holdings with longer maturities to support the economy by keeping borrowing costs down.
U.S. Data
New home sales rose 2.1 percent in April, following a 7.1 percent decline in March, a Bloomberg News survey of economists showed before the Commerce Department reports the figure today.
At yesterday’s $35 billion two-year sale, investors bid for 3.95 times the amount of securities available, the most since the record high of 4.07 in November.
The $35 billion of five-year notes being sold today yielded 0.775 percent in pre-auction trading, poised to break the all- time low of 0.88 percent set in December.
Investors bid for 3.09 times the amount offered at the last sale of the securities April 25, versus the average of 2.93 for the past 10 auctions.
Indirect bidders, the category of investors that includes foreign central banks, bought 47.5 percent of the securities, the most since December at the monthly auctions.
The government is scheduled to conclude this week’s sales with $29 billion of seven-year securities tomorrow.
Market participants are cutting their yield predictions. The 10-year rate will be 2.45 percent by year-end, a Bloomberg survey of banks and securities companies shows, with the most recent forecasts given the heaviest weighting. The projection is the least in almost a year of data compiled by Bloomberg.
Robert Carnell at ING Bank NV in London trimmed his 10-year forecast to 1.9 percent from 2 percent, based on figures provided yesterday for the survey. Ian Shepherdson at High Frequency Economics Ltd. in Valhalla, New York, reduced his figure to 2.5 percent from 3 percent.
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.
