MW: Treasury yields off, could head toward recent lows
By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices rose Tuesday, pushing yields lower, after Moody’s Investors Service downgraded some of Spain’s regions, a move that weighed on equities, the euro and Spanish bonds.
Market perceptions that President Barack Obama won Monday night’s debate against Republican candidate Mitt Romney may also be partially credited for the gains in government debt.
“If Obama is re-elected, we’ve got a feisty House to contend with and a fiscal cliff and set of tax policies that create ongoing uncertainty in the midst of a disappointing earnings season,” said bond strategists at CRT Capital Group.
That could push yields to the low end of their recent range — around 1.63% for 10-year notes, they said. Bond prices move inversely to their yields.
Later in the session, the Treasury Department will auction 2-year notes 2_YEAR -2.57% . Auctions are often examined as a snapshot of investor demand for U.S. debt.
Yields on 10-year notes 10_YEAR -2.37% fell 4 basis points to 1.77%. A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR -1.58% declined 5 basis points to 2.92%.
Five-year note yields 5_YEAR -3.04% lost 3 basis points to 0.76%.
Spain’s regional downgrades, along with more weakness in corporate earnings, weighed on equities, which tend to move in the opposite direction as bond prices and traders shift between assets deemed safer or more risky and driven by growth. Earnings, Spain worries weigh on European stocks.
The downgrades for regions in Spain, though not the country itself, still point to a weak outlook and an inability to handle its debt, which is seen as likely meaning that Spain needs financial support from its neighbors. Read: Spain is decaying from within.
Also, it’s the beginning of the Federal Reserve’s two-day policy meeting, though changes in its statement may be small. Read Monday’s: Treasurys drift lower before debate, Fed.
The U.S. central bank is expected to wait until its next meeting in December — after the election and near the end of the year — to say it will continue to Treasury-buying portion of its program known as Operation Twist that’s scheduled to expire at year-end. Read: fed considers upping QE3 size and language.
That may be why analysts are also paying attention to New York Times columns about who will replace Fed Chairman Ben Bernanke when his term ends in 2014. He’s expected to step down no matter who is president. Read: countdown to changes at the Fed.
Deborah Levine is a MarketWatch reporter, based in San Francisco.
