BLBG: Treasuries Rise as Surge in Yield Presents Buying Opportunity
By Daniel Kruger and Matthew Brown
March 25 (Bloomberg) -- Treasuries rose, rebounding from their biggest decline in nine months, as some investors bet yesterday’s surge in yields was unjustified.
The 9-day relative strength index on the 10-year Treasury note rose yesterday to 73.1, the highest level since December. A reading near 70 or above indicates yields are poised to fall. The U.S. Treasury will auction $32 billion of 7-year notes after yesterday’s sale of 5-year securities sold at a yield that was the highest above an average pre-auction forecast since July.
“Treasuries got oversold yesterday, and that’s seeing them come back a little today,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London.
The yield on the benchmark 10-year note fell 1 basis point, or 0.01 percentage point, to 3.85 percent at 8:37 a.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security due in February 2020 rose 3/32, or 94 cents per $1,000 face amount, to 98 5/32. The two-year yield fell 2 basis points to 1.08 percent.
Treasuries pared gains after a Labor Department report showed initial jobless claims fell to the lowest level in six weeks. First-time jobless applications declined to 442,000 in the week ended March 20. The median forecast of 43 economists in a Bloomberg News survey was for a drop to 450,000.
Fed Chairman Ben S. Bernanke is scheduled to speak today on unwinding the emergency programs implemented to rescue the economy from last year’s recession.
Treasuries ‘Slaughtered’
“Treasuries got slaughtered” yesterday, said Andy Cossor, Hong Kong-based chief market strategist for Asia at DZ Bank AG, Germany’s fifth-largest lender. Ten-year yields will climb to 4.60 percent by year-end, he said.
Yesterday’s auction of five-year notes drew a yield of 2.605 percent, compared with the average forecast of 2.556 percent in a survey of eight of the Fed’s 18 primary dealers. The difference of 4.9 basis points was the largest since July, based on Bloomberg surveys.
Investors bid for 2.55 times the amount on offer, the lowest level since September. Demand from the group of investors that includes foreign central banks was the least in eight months, raising speculation China cut its purchases as U.S. politicians said the yuan should appreciate.
“I would not be surprised if the low indirect bid had something to do with the Chinese sitting on their hands,” said Joseph Brusuelas, a strategist at Brusuelas Analytics in Stamford, Connecticut.
China’s Debt Holding
China is America’s largest creditor, holding $889 billion of the nation’s $7.4 trillion of marketable debt, according to Treasury Department figures.
U.S. interest-rate swap spreads plunged to the lowest levels in more than two decades after Fitch Ratings’ downgrade of Portugal yesterday raised the risk of owning sovereign debt.
“The momentum is to higher yields,” said Aaron Kohli, an interest-rate strategist in Stamford at Royal Bank of Scotland Group Plc, one of 18 primary dealers obligated to bid at Treasury auctions. “It’s not the auction that started the trend, it was the swap spreads. But the auction kept it going.”
The gap between the rate to exchange floating- for fixed- interest payments and comparable-maturity Treasury yields for 10 years shrank to negative 10.19 basis points, the narrowest since at least 1988, when Bloomberg began collecting the data.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net
