BLBG:Treasuries Advance After Spain Sees Debt Sales To Rescue Bankia
Treasuries rose, extending a second monthly gain, after Spain said it may need to sell bonds to rescue Bankia group, increasing demand for the safest assets.
U.S. 10-year yields dropped to within four basis points of a record low as the announcement added to concern the European debt crisis is worsening. Treasuries have returned 2.6 percent since the end of March, according to Bank of America Merrill Lynch indexes. Investors tracking the MSCI All-Country World Index of stocks lost 9.4 percent. U.S. yields are poised to “grind lower,” according to Deutsche Bank AG.
“Demand for ultra-safe assets is enormous given what’s going on in the euro zone,” said Padhraic Garvey, head of developed markets at ING Bank NV in Amsterdam. “Quality flight rather than the macro backdrop is the dominating force.”
The benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 1.72 percent at 7:41 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent security due May 2022 rose 1/8, or $1.25 per $1,000 face amount, to 100 7/32. The yield earlier dropped to 1.71 percent, approaching the record 1.6714 percent set on Sept. 23.
U.S. 10-year yields may decline to 1.4 percent or lower, tracking the slide in German rates, according to Hans Goetti, Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which manages the equivalent of $1.5 billion in assets. Ten-year bund yields slid to an all-time low 1.345 percent today. Goetti said he has been buying U.S. debt for the past 12 months.
Treasury trading was shut in the U.S. yesterday for Memorial Day.
Spanish Yields
Spanish 10-year bond yields climbed as high as 6.53 percent today, the most since November, on concern the nation’s banks will need additional financial support to weather the debt crisis. The nation’s favored option is to raise funds for refinancing Bankia in debt markets, said a spokesman for the Economy Ministry, who asked not to be identified by name in line with policy.
The extra yield investors demand to hold Spanish 10-year securities instead of their German counterparts increased to 5.16 percentage points, the widest since the introduction of the euro in 1999.
Deutsche Bank, one of the 21 primary dealers that deal directly with the Federal Reserve, is skeptical of trades that add risk, according to a report on May 25.
‘Remain Buyers’
“We remain buyers of Treasuries on dips,” Dominic Konstam, global head of interest-rate research in New York for the bank, wrote in the report. “We continue to expect Treasury yields to grind lower.”
Volatility on Japanese bonds was the highest in developed markets today, according to measures of 10-year debt, two- and 10-year yield spreads and credit-default swaps. The yield on the 10-year security dropped 2.5 basis points to 0.85 percent, the biggest decline since May 18.
Treasuries aren’t attractive to Yoshiyuki Suzuki, Tokyo- based head of fixed income at Fukoku Mutual Life Insurance Co., which has the equivalent of $70.5 billion in assets.
“Yields are too low,” Suzuki said. “We don’t have to buy at the current level. The U.S. economy is showing signs of slowing, but it’s not so bad.”
The U.S. added 150,000 jobs in May, after a gain of 115,000 in April, based on a Bloomberg News survey before the Labor Department issues the figures on June 1. The Conference Board index of consumer confidence rose to 69.5 in May from 69.2 in April, a report today will show, based on survey estimates.
Fed Sales
The central bank plans to sell as much as $8.75 billion of Treasuries due from June 2014 to May 2015 today, according to the Fed Bank of New York’s website. The sales are part of its program to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to support the economy by keeping down borrowing costs.
While Treasury 10-year note yields approach record lows, they’re cheap compared with AAA debt of other nations, helping trigger record demand at U.S. bond auctions even in a fourth year of $1 trillion budget deficits.
Yields on the benchmark security are 24 basis points higher than the average for comparable debt of nations from Germany to Australia, above the average of 12 basis points in the past year, data compiled by Bloomberg show. The gap between U.S. notes and German bunds widened to 37 basis points. As recently as November, bunds yielded 34 basis points more than Treasuries.
“Looking at the spectrum of opportunities in safe-haven assets, yields in 10-year Treasuries don’t really look that bad,” Gregory Whiteley, who manages investments in government debt at Los Angeles-based DoubleLine Capital LP, which has $35 billion in assets, said in a May 25 telephone interview.
Even after boosting the amount of marketable debt outstanding to more than $10 trillion from $4.34 trillion in mid-2007, the Treasury is attracting record demand at auctions. The cost to President Barack Obama’s administration of financing a fourth straight deficit has never been lower. The extra yield investors receive on Treasuries is an added benefit for investors seeking a haven from Europe’s sovereign debt turmoil.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
