BLBG:Treasuries Head For Weekly Drop As Euro Leaders Meet
Treasuries extended a weekly decline amid speculation European leaders will take steps to tackle the sovereign debt crisis, damping demand for the perceived safety of U.S. government securities.
Ten-year notes fell after an advance yesterday pushed yields down the most in almost a week, following reports indicating U.S. growth is sputtering. German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish leader Mariano Rajoy will gather in Rome today to prepare for a June 28-29 European Union summit at which leaders will discuss the path to further financial integration. German business confidence dropped.
“The upside for U.S. government bonds is limited ahead of next week’s key EU summit,” said Nick Stamenkovic, a fixed- income strategist at broker RIA Capital Markets Ltd. in Edinburgh. The Ifo institute’s business climate index data “soured risk sentiment, aiding Treasuries,” he said.
Ten-year yields climbed three basis points, or 0.03 percentage point, to 1.64 percent at 6:29 a.m. New York time, according to Bloomberg Bond Trader data, after falling four basis points yesterday. The yield is up from 1.58 percent on June 15. The 1.75 percent notes due May 2022 fell 1/4, or $2.50 cents per $1,000 face amount, to 100 31/32.
Debt Crisis
Treasuries returned 3.2 percent from the end of March through yesterday, according to Bank of America Merrill Lynch’s indexes, amid concern Europe’s debt crisis was worsening and U.S. growth was slowing. The 10-year note yield reached a record low of 1.44 percent on June 1 before climbing on bets policy makers and central banks will act to stem the crisis. The S&P 500 Index (SPX) of U.S. shares lost 5.4 percent since March after taking account of reinvested dividends.
Two-year note yields rose three basis points this week to 0.30 percent as Antonis Samaras, leader of Greece’s New Democracy, established a three-party coalition government following two elections.
“We’ve avoided the worst situation in Greece, so the sense of relief lifted bond yields,” said Hideki Shibata, a senior strategist for rates and foreign exchange at Tokai Tokyo Research Center Co. “I expect yields to rise gradually.”
The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Economists predicted a decline to 105.6, according to the median of 39 estimates in a Bloomberg News survey.
Economic Forecast
Treasuries rose yesterday as data showed more Americans than forecast filed claims for jobless benefits, manufacturing in the Philadelphia region shrank and sales of existing homes fell, reports showed. A Chinese output gauge indicated contraction and euro-area manufacturing shrank.
The Federal Reserve cut its forecast for the U.S. economy two days ago, saying the lower range of its 2012 growth estimate is now 1.9 percent, down from the April forecast of 2.4 percent.
Policy makers refrained from introducing a third round of quantitative easing this week and instead extended through year- end their so-called Operation Twist of selling shorter-term securities and buying the same amount of longer-term debt to lower borrowing costs. The $400 billion program was scheduled to end this month. The Fed expanded it by $267 billion.
Bill Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co., said in a Twitter posting yesterday that so-called risk markets are vulnerable as the “monetary bag of tricks empties.”
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
