BLBG:Treasuries Rise European Debt Concern, Pushing 10-Year Yields to Week Low
Treasuries rose, pushing 10-year yields to the lowest in more than a week, on concern Europe’s rescue of Greece won’t resolve the region’s sovereign woes.
Thirty-year bonds rose for a fourth-straight day after Group of 20 nations rebuffed German-led calls for financial support to tackle the debt crisis, boosting demand for the relative safety of U.S. debt. The Federal Reserve is scheduled to buy U.S. government debt today. U.S. policy makers will probably announce a third round of outright purchases in the second quarter, according to Jefferies & Co. Inc., one of the 21 primary dealers that trade with the central bank.
“The news flow has been relatively disappointing over the weekend with no agreement on the G-20 front and every decision seems to have been postponed,” said Kornelius Purps, a fixed- income strategist at UniCredit SpA in Munich. “This has supported bond markets. Yields are low and will remain low.”
U.S. 10-year yields slid three basis points to 1.95 percent at 10:48 a.m. London time, the least since Feb. 16 according to Bloomberg Bond Trader prices. The 2 percent security due February 2022 rose 1/4, or $2.50 per $1,000 face amount, to 100 15/32. The rate on 30-year debt also dropped three basis points, to 3.07 percent.
The Stoxx Europe 600 Index (SXXP)of shares slipped 0.8 percent and the MSCI Asia Pacific Index (SXXP)also fell 0.8 percent.
Europe Rebuffed
Germany urged G-20 nations to find fresh money for the International Monetary Fund that could be channeled to help damp the euro-area turmoil as officials from the countries met in Mexico City over the past two days.
The G-20 concluded that a European review of its rescue funds in March is “essential” before any consideration can be made to boost IMF resources, it said in its closing statement yesterday. Progress will be assessed in April, when officials gather in Washington for the IMF’s spring meetings.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs under a program it plans to conclude in June. It’s scheduled to purchase as much as $5 billion of notes due from February 2018 to February 2020 today as part of its efforts to keep borrowing costs down.
“The Fed wants to keep rates down,” said Roger Bridges, who oversees the equivalent of $16 billion of debt as the Sydney-based head of fixed income at Tyndall Investment Management Ltd., a unit of Nikko Asset Management Co. in Japan. “You’ve got a buyer in the market all the time. I think Treasuries are very expensive.”
Bernanke Bond Buying
Fed Chairman Ben S. Bernanke will give his semi-annual monetary policy report to House lawmakers on Feb. 29 and the following day to the Senate Banking Committee.
Bernanke may use the speeches to “plant the seeds” for additional bond buying, Ward McCarthy and Thomas Simons, New York-based economists for Jefferies, wrote in a report on Feb. 24. The Fed will focus its purchases on mortgage-backed securities, acquiring $500 billion to $650 billion of them to support the U.S. housing market, the report said. The central bank will probably also buy long-term Treasuries, it said.
Officials aren’t in agreement on such a plan. James Bullard, president of the Fed Bank of St. Louis, and Charles Plosser, the Philadelphia Fed President, both said on Feb. 24 that they oppose further purchases of mortgage securities.
U.S. economic growth will push 10-year yields up to 2.48 percent by the end of this year, a Bloomberg survey of banks and securities companies shows.
Home Sales
Pending home sales probably rose 1 percent in January, recovering from December’s 3.5 percent slide, according to the median forecast in a Bloomberg News survey of economists before the National Association of Realtors reports the figure today.
“Housing is bottoming out and starting to recover,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “Yields around 2 percent are too low.”
Manufacturing probably accelerated for a fourth month in February, consumer confidence improved and Americans picked up the pace of spending in January, economists forecast in separate reports this week will show.
U.S. two-year notes yielded 0.30 percent, after climbing to 0.31 percent at the end of last week, the most since Oct. 27. The 14-day relative strength index for two-year yields suggests rates won’t rise much further. The index was at 62.7, after climbing to 70.7 on Feb. 24. A reading of more than 70 suggests to some traders that rates may be about to reverse direction.
European Credit Markets
The bailout that rescued Greece from a default has failed to restore confidence in credit markets, where traders are paying nine times more to insure European government bonds than they are for Treasuries.
While European stocks are off to their best start since 1998, the relative cost of credit-default swaps has risen to a record, according to CMA.
“Bond markets don’t believe in the same story that stock markets do,” Robin Marshall, director of fixed income in London at Smith & Williamson Investment Management, which oversees about $18 billion, said in a Feb. 22 interview. “Countries are still saddled with huge debt.”
The Markit iTraxx SovX Western Europe index of default swaps linked to 15 nations from Finland to Italy increased nine basis points in February to 348, up 34 percent since July, indicating a rising perception of risk. It reached an all-time high of 385 on Nov. 25. The cost of insuring U.S. debt dropped by more than 40 percent in that period. The ratio between the two rose a record 9.81-to-1 on Feb. 23.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
