BLBG: U.S. Treasuries Little Changed After Auctions as Stocks Advance
Treasuries were little changed after the U.S. sold a record $67 billion in notes and bonds this week and as stocks rose on speculation the U.S. will cut homeowners’ borrowing costs, sapping demand for fixed-income assets.
Ten- and 30-year securities dropped earlier as the MSCI World Index gained for the first time in four days.
“There is a little bit of hangover from the supply of the 30-year auction,” said Martin Mitchell, head of government bond trading at the Baltimore unit of Stifel Nicolaus & Co. “The lower price is helping to distribute the trade.”
The yield on the benchmark 10-year note decreased one basis point, or 0.01 percentage point, to 2.78 percent at 8:29 a.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security maturing in February 2019 rose 1/32, or 63 cents per $1,000 face amount, to 99 24/32.
The 10-year yield fell 21 basis points this week. The yield, which tumbled to a record low of 2.04 percent on Dec. 18, averaged 4.55 percent this decade. It will decrease to 2.5 percent by the end of the first quarter, according to Kornelius Purps, a fixed-income strategist at Unicredit Markets & Investment Banking in Munich.
The MSCI World Index of shares rose 0.7 percent, while the Dow Jones Stoxx 600 Index of European shares gained 1.6 percent.
Twos Versus Tens
“The equity rally, based on the rumor of yet another mortgage-refinancing plan in the U.S., is weighing on Treasuries,” said Purps. “However, the news we are receiving is quite grim, and the fixed-income universe remains well- supported.”
Two-year note yields fell two basis points to 0.90 percent, widening the difference, or spread, with 10-year note yields to 188 basis points from 145 basis points at the start of the year.
“The front end has grudgingly taken part in the recent sell-off, which we believe was caused by a supply-demand imbalance,” strategists including Larry Kantor, head of research at Barclays Capital Inc. in New York, one of the 16 primary dealers that trade with the U.S. central bank, wrote in a report dated yesterday. “Two-year Treasuries at 90 basis points are pricing in too aggressive a Federal Reserve, given economists’ projections for growth and unemployment.”
President Barack Obama’s administration’s housing plan will use government money to help reduce interest rates for struggling borrowers, while asking lawmakers to approve more ways to change mortgages, according to a person briefed on the proposal.
Treasury Auctions
The Treasury sold $32 billion of three-, $21 billion of 10- and $14 billion of 30-year debt this week to help pay for government spending plans.
Thirty-year bonds yielded 3.54 percent at yesterday’s sale, the lowest on record, yet higher than the 3.514 percent yield traders anticipated in a Bloomberg News survey before the auction. The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, was 2.02, indicating weaker demand. At the Treasury’s last sale of the bonds, the ratio was 2.07.
The so-called real yield on 10-year notes, or the yield after inflation is taken into account, was 2.74 percent, compared with 2.11 percent at the end of last year. Consumer prices rose 0.1 percent last year, after increasing 4.1 percent in 2007.
G7 Meets
A private report today may show confidence among U.S. consumers fell in February. The Reuters/University of Michigan preliminary index of sentiment slid to 60.2, from 61.2 in January, according to the median forecast in a Bloomberg News survey. The decline, the first in three months, would keep the index near a 28-year-low of 55.3 set in November.
Finance ministers and central bankers from the Group of Seven leading industrial nations, scheduled to meet in Rome, will discuss proposals to bolster economic growth. The agenda includes thwarting protectionism, overhauling financial oversight and ending what the International Monetary Fund calls a depression in advanced economies.
Treasuries declined after China Banking Regulatory Commission official Luo Ping said holding U.S. government bonds isn’t the only option for investing reserves, clarifying earlier comments, the China News Service reported.
Holding gold and other government debt remains an option, Luo, head of the training center at the banking regulator, was quoted as saying in an interview with the news agency yesterday. If the U.S. issues too much debt to fund efforts to revive the economy, Treasury holders will suffer losses, he was quoted as saying.
Custodial Holdings
China owns $681.9 billion of the $5.75 trillion in U.S. marketable debt, making it the largest overseas holder, Treasury Department data show.
The Fed’s custodial holdings of Treasuries for foreign institutions including central banks rose 0.5 percent to a record $1.743 trillion, central bank data show. The holdings slipped last week to $1.735 trillion, the first decrease in 24 weeks.
Custodial holdings of agency securities dropped for the first time in two weeks, decreasing 0.3 percent to $817.9 billion. They fell for 16 straight weeks between October and January.
The Securities Industry and Financial Markets Association recommended trading close today at 2 p.m. New York time and stay closed on Feb. 16 for the President’s Day holiday in the U.S.
