BLBG:Treasuries Set for Weekly Drop Amid Optimism Before Greek Talks
Treasuries headed for their first weekly drop in five as optimism that European leaders will reach a compromise and enable Greece to receive its next tranche of bailout money sapped demand for the safest assets.
Benchmark 10-year yields fell from a two-week high after Standard and Poor’s lowered the credit ratings on three Spanish banks. Finance ministers from the euro-area are due to hold an emergency meeting on Nov. 26 to discuss unlocking bailout funds for Greece, after failing to reach an agreement on Nov. 21. Trading of U.S. government bonds was closed in Japan today for a holiday according to the Securities Industry and Financial Markets Association website.
“We have the meeting on Greece and it looks increasingly likely that a compromise will be cobbled together,” boosting demand for riskier assets, said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The Treasury market will be dictated to by events in Europe.”
The 10-year yield was little changed at 1.68 percent as of 10:47 a.m. in London, set for a nine-basis point increase since Nov. 16. The 1.625 percent note maturing in November 2022 was at 99 18/32, according to Bloomberg Bond Trader prices. The rate rose earlier to 1.70 percent, the most since Nov. 7.
U.S. government securities returned investors 2.3 percent this year, Bank of America Merrill Lynch indexes show. The MSCI World Index (MXWO) of shares has risen 12 percent during the period, including reinvested dividends. Demand for the securities has been sustained as European leaders struggle to resolve the sovereign debt crisis and the U.S. approaches the so-called fiscal cliff of automatic spending cuts and tax increases.
Greek Loans
Greece has been negotiating with euro-area politicians and the International Monetary Fund over the steps needed to qualify for the release of loan installments frozen since June.
“Investors have been pretty comfortable dismissing the lack of progress” in the Greek situation, said Michael Turner, a fixed-income strategist in Sydney at Royal Bank of Canada. Turner said he expects “a little bit more demand to surface” should Treasury yields rise to as high as 1.75 percent.
The U.S. government is scheduled to auction a total of $99 billion in bonds next week, starting with $35 billion of two- year notes on Nov. 27. The Treasury will offer the same amount of five-year securities on Nov. 28 and $29 billion of seven-year debt the following day.
The 10-year yield has rebounded since it reached a two- month low of 1.55 percent on Nov. 16 when President Barack Obama met congressional leaders about the fiscal cliff. House Speaker John Boehner and White House Press Secretary Jay Carney both described the discussions as “constructive.”
The fiscal cliff refers to the $607 billion combination of automatic spending cuts and tax increases scheduled to take effect in January. Lawmakers are trying to avert the cliff to prevent a short-term shock to the economy and reach an agreement on long-term deficit reduction.
“When the fiscal cliff negotiation starts again, it should be more constructive,” said Alvin Liew, a senior economist at United Overseas Bank Ltd. (UOB) in Singapore. “That should be negative” for Treasuries, he said.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
