BLBG:Treasuries Fall as Greek Lawmakers Approve Cuts, Extend Two-Week Decline
Treasuries (YCGT0025) fell, extending two weeks of losses, as Greek lawmakers approved austerity measures demanded for a European financial lifeline, damping demand for the relative safety of U.S. government debt.
Ten-year yields climbed above 2 percent for a fourth day before a government report tomorrow that economists said will show U.S. retail sales rose in January by the most in four months. Nomura Holdings Inc., one of the 21 primary dealers that trade with the Federal Reserve, said it’s bearish on Treasuries because of recent economic data.
“Treasuries are being driven by events in the euro zone,” said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group AG in Zurich. “If sentiment continues to be positive for risky assets, then it’s likely that Treasury yields will increase further.”
The benchmark 10-year yield climbed three basis points, or 0.03 percentage point, to 2.02 percent at 10:38 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 fell 9/32, or $2.81 per $1,000 face amount, to 99 26/32. The yield increased 10 basis points in the two weeks through Feb. 10.
U.S. government bonds have lost 0.7 percent in February, following a 2.1 percent gain over the previous three months, according to a Bank of America Merrill Lynch index.
‘Opening the Road’
Greece’s legislature gave backing to Prime Minister Lucas Papademos’s austerity bill, with 199 lawmakers voting for the measure and 74 against, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV. “Voting for the economic program and opening the road for a loan accord sets the basis for the modernization and recovery of the economy,” Papademos told parliament.
“Hopes that the finance ministers of the euro group will approve the second aid package for Greece are justified,” Viola Stork and Ulrich Wortberg, analysts at Helaba Landesbank Hessen- Thueringen in Frankfurt, wrote in a note to clients. “The risk appetite of market participants could rise again, also due to the economic data reports.”
Sales (RSTAMOM) at U.S. retailers gained 0.8 percent last month after a 0.1 percent increase in December, according to the median forecast of economists surveyed by Bloomberg News before the Commerce Department report tomorrow. Labor Department data on Feb. 3 showed the jobless rate unexpectedly fell to 8.3 percent in January, the lowest since February 2009.
Nomura has a “near-term” target of 2.16 percent for 10- year yields and a medium-term projection of 2.40 percent, according to a Feb. 10 report by George Goncalves, head of rates research, and Marcus Phua, a strategist, in New York.
Bearish View
Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, maintained their bearish stance on Treasuries. Ried’s index on the market outlook through June slid to 44 for the week ended Feb. 10 from 45 the previous week. A figure below 50 shows investors expect U.S. government debt to decline.
The market for Treasuries is embracing Fed Chairman Ben S. Bernanke’s view that signs of improving growth mask threats to the U.S. economy, keeping inflation in check.
Traders are betting that government debt yields will remain subdued in the years ahead, even with oil prices stuck at around $100 a barrel. The cost to exchange fixed- for floating-rate payments in a decade has averaged 3.38 percent this year. The so-called forward 10-year swap rate, which has fallen from last year’s peak of 5.47 percent in February, is trading at the same levels as early 2009.
Gross Bullish
While the U.S. jobless rate fell and manufacturing picked up, investors have kept yields on Treasuries near record lows as the Fed lowered forecasts for economic growth and inflation. Bill Gross, who manages the world’s largest bond fund at Newport Beach, California-based Pacific Investment Management Co., has boosted his holdings of U.S. government debt to the highest level since July 2010.
“The market is just not buying that the recent improvement will be sustained,” said Ruslan Bikbov, a fixed-income strategist at Bank of America Corp. in New York. “Expectations for lower growth ahead, a shortage of riskless assets and upcoming U.S. fiscal tightening are combining with the fact the Fed is on hold through late 2014 to push forward rates lower.”
The Fed is scheduled to buy as much as $2 billion of Treasuries due from 2036 and 2041 today as part of a plan announced in September to replace $400 billion of shorter maturities in its holdings with longer-term debt to cap borrowing costs.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
