BLBG:Treasuries Drop Before U.S. Payrolls Report as Greek Swap Picks Up Support
Treasuries dropped for a second consecutive day before a report forecast by economists to show U.S. payrolls rose last month, bolstering optimism the economic recovery is gathering momentum.
The securities also fell as Greece garnered support for a planned debt exchange, putting the nation on the verge of the biggest sovereign restructuring in history. U.S. government debt has lost 0.3 percent this year, while an index of investment- grade and high-yield corporate securities has gained 3.3 percent, according to Bank of America Merrill Lynch indexes.
“The jobs report is key,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Banking Group Plc in London. “The market has been telling itself over the past two months that the U.S. is not going to have a double-dip recession. If you look at the 10-year yield, it seems that it has been forming a new range; a higher, much narrower one.”
Yields on 10-year notes increased two basis points, or 0.02 percentage point, to 2 percent at 6:56 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 fell 5/32, or $1.56 per $1,000 face amount, to 100 1/32.
The benchmark yields advanced three basis points yesterday. They will rise to 2.25 percent in three to six months, according to Mercuri. A record low 1.67 percent was reached on Sept. 23.
The 10-year note yields will advance to 2.53 percent by Dec. 31, according to the average projection of economists in a Bloomberg News survey, with the most recent forecasts given the heaviest weightings.
Payrolls Report
U.S. employers added more than 200,000 jobs for a third straight month in February, according to the median forecast of 89 economists in a Bloomberg News survey before tomorrow’s report from the Labor Department.
Treasuries fell yesterday as ADP Employer Services reported that companies increased the number of workers by 216,000 in February, compared with 173,000 in the previous month. Today’s weekly figures from the government on initial claims for unemployment benefits are projected to be unchanged at 351,000, a separate Bloomberg News survey of economists showed.
Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have indicated they will participate. Already agreeing are Greece’s largest banks, most of the country’s pension funds and more than 30 European banks and insurers such as BNP Paribas SA, Commerzbank AG (CBK) and Assicurazioni Generali SpA. (G)
Compelling Holdouts
While Greece would prefer a voluntary deal, the government has said it will use collective-action clauses to force holders of Greek-law bonds into the swap. Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit-default swaps.
“Even if there’s a scenario where the CDS could be triggered, I think it’s still a reasonably risk-on” event for markets, said Orlando Green, a London-based fixed-income strategist at Credit Agricole SA. “It’s not a messy default. It’s reasonably favorable for yields to rise in Treasuries because of the solid progress the economy is making.”
Treasuries also fell as the U.S. prepared to announce today the sizes of three auctions of coupon-bearing securities scheduled for next week. The government will sell $32 billion of three-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance. The auctions will take place over three days starting March 12.
Fed Operation
The Fed plans to buy as much as $5.25 billion of U.S. debt due from May 2020 to February 2022 today, according to the New York Fed’s website. The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term bonds to cap borrowing costs. Policy makers said in January they intend to keep the benchmark interest rate at almost zero until at least late 2014.
Demand for highly rated bonds combined with central bank efforts to support the economy will cap yields, according to Fidelity Investments, a Boston-based fund management company that oversees $1.52 trillion.
“There is an upper bound, given the safe-haven status of U.S. Treasuries and remarks by the Federal Reserve,” Chris Sullivan, the head of fixed-income institutional investments, wrote on the company’s website yesterday. “Treasuries will continue to play an important role.”
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
