BLBG:Treasuries Snap 6-Day Gain Before Consumer Data, Auctions
Treasuries extended their longest run of gains in 15 months on concern Europe’s debt crisis is worsening after Spanish borrowing costs rose at a debt sale and the International Monetary Fund said Greece’s fiscal outlook has worsened.
Benchmark 10-year yields dropped to the lowest level in two weeks after IMF Director General Christine Lagarde said yesterday that global growth will probably be weaker than the organization projected in July. Two-year notes were little changed before the U.S. government sells $35 billion of the securities today.
“Treasury yields are exceptionally low but it is justified as long as the crisis in the euro zone drags on,” said Peter Chatwell, a fixed-income strategist at Credit Agricole (ACA) Corporate and Investment Bank in London. “We need to see further abating in the euro debt crisis for Treasury yields to rise.”
The 10-year yield dropped two basis points, or 0.02 percentage point, to 1.69 percent at 7:43 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note maturing in August 2022 rose 6/32, or $1.87 per $1,000 face amount, to 99 13/32. The yield fell to 1.68 percent, the lowest since Sept. 11.
The seven-day gain matched the longest advance since the period ended May 6, 2011.
Treasuries reached the most expensive level in two weeks today. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.91 percent, the most costly since Sept. 10. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
Consumer Confidence
Borrowing costs rose as Spain sold 4 billion euros ($5.16 billion) of bills at an auction in Madrid today, meeting its maximum target, the Bank of Spain said. The yield on the three- month debt it auctioned was 1.203 percent compared with 0.946 percent at a previous sale on Aug. 28, while the six-month securities yielded 2.213 percent compared with 2.026 percent.
An increase in Spain’s borrowing costs boosted speculation the country may soon ask the European Central Bank to bail it out through its bond-purchase program.
Treasury gains were tempered before industry reports economists said will show U.S. consumer confidence and home prices rose.
The Conference Board’s index of U.S. consumer confidence rose to 63.2 in September from 60.6 in August, based on a Bloomberg News survey of economists before the report at 10 a.m. New York time.
Home Prices
An index from S&P/Case-Shiller at 9 a.m. New York time will show home prices in 20 U.S. cities rose 1.1 percent in July from a year earlier, the most since August 2010, a separate survey showed. The Fed Bank of Richmond is scheduled to issue a manufacturing report at 10 a.m. New York time.
Treasuries rose yesterday as European leaders clashed on ways to curb the euro region’s debt crisis, supporting demand for the safest securities.
Lagarde said the IMF expects global growth to be “a bit weaker” than it projected in July. The fund had expected growth of 3.5 percent this year and 3.9 percent in 2013.
She added Greece faces a financing gap that won’t be solved by budget measures discussed.
“The global economy is not doing well,” said Hajime Nagata, who helps oversee the equivalent of $132.4 billion as an investor in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co. (8750), Japan’s second-biggest life insurer. “Treasuries will probably be able to go higher.”
Nagata said he may consider selling if 10-year yields fall to 1.50 percent.
Debt Auction
The two-year notes being sold at 1 p.m. in New York today yielded 0.265 percent in pre-auction trading, compared with 0.273 percent at the previous sale of the securities on Aug. 28.
Investors bid for 3.94 times the amount of two-year securities sold last month, versus the average of 3.78 times for the past 10 auctions.
Indirect bidders, the category of buyers that includes foreign central banks, purchased 22.3 percent of the securities, the least this year.
Two-year notes have returned 0.2 percent this year through yesterday, while 10-year Treasuries gained 3.6 percent, Bank of America Merrill Lynch indexes show.
The MSCI All-Country World Index of shares has surged 15 percent in the period, including reinvested dividends, according to data compiled by Bloomberg.
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: Paul Dobson at pdobson2@bloomberg.net
