MW: Treasurys fall on positive news from EU summit
By Deborah Levine and Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices fell on Friday as agreements at a European summit on helping banks boosted investors’ willingness to buy riskier assets.
Yields on 10-year notes 10_YEAR +4.43% , which move inversely to prices, rose 6 basis points to 1.65%.
A basis point is one one-hundredth of a percentage point.
“Given past summit disappointments, the bar had been set really low,” said Kevin Flanagan, chief fixed-income strategist for Morgan Stanley Smith Barney. “The financial markets have initially responded with a risk-on trade, to the detriment of Treasurys.”
In order for yields on 10-year notes to move up into the 1.75% to 2% range, “euro officials will need to actually deliver on what has apparently been agreed to,” he said in emailed comments.
Looking ahead, the U.S. Treasury market “will be faced with a number of key events between today and next Friday: the final results of the current euro summit, the ECB meeting on July 5th and finally the [U.S.] jobs report next Friday, Flanagan said.
Yields on 30-year bonds 30_YEAR +2.73% increased 6 basis points to 2.74%.
Five-year yields 5_YEAR +5.76% added 5 basis points to 0.74%.
European Union leaders meeting in Brussels agreed to establish a single supervisor for euro-zone banks and said the region’s permanent rescue fund — the European Stability Mechanism — will be able to directly recapitalize banks, defying low expectations among investors and traders. See more on EU summit outcome.
Stocks and the euro EURUSD +1.7488% gained, and yields on German bunds — also seen as a safe haven — rose, noted Andrew Wilkinson, chief economic strategist at Miller Tabak. See story on euro.
“The general rise in risk appetite similarly saw investors dump U.S. Treasury notes,” he said.
Bonds showed little reaction to the latest U.S. data on the economy.
A report showed consumer spending was nearly unchanged in May, while an index on inflation fell, in line with expectations. Read more on consumer spending.
A measure of Chicago-area manufacturing conditions in June edged higher, with the Chicago PMI increasing to 52.9% from May levels of 52.7%, while the University of Michigan-Thomson Reuters consumer-sentiment index fell to a final June reading of 73.2 — the lowest level since December. Read more on consumer sentiment.
However, bond yields stayed within the relative tight range seen lately.
A week ago, 10-year notes yielded 1.67% and 30-year bond yields were at 2.76%. Five-year yields were at 0.75% last Friday.
Yields on all three benchmark securities are up for the first month in three. But big declines in the prior two months leave Treasurys on pace for a good rally this quarter.
“The past quarter has been dominated by EU uncertainty which led to outsized flight-to-quality move into U.S. Treasurys,” said George Goncalves, bond strategist at Nomura Securities.
Ten-year yields have fallen from 2.22% at the end of March, while 30-year yields have dropped from 3.35%.
Similarly, 5-year yields have declined from 1.04% three months ago.
In the last three months, Treasurys of all maturities have returned 3.3%, according to Bank of America Merrill Lynch. Corporate debt has returned 2.48% in the last three months, while high-yield debt is up 1.4%.
However, for the year, investment-grade and high-yield debt is still outperforming Treasurys, which have gained 2.07% so far in 2012. Company debt is up 5.15% this year, and high-yield bonds have returned 6.68%.
Deborah Levine is a MarketWatch reporter, based in New York.
Myra Saefong is a MarketWatch reporter based in San Francisco.
