BLBG:Treasuries Snap Loss as Italian Sales to Test Demand
Treasuries halted a decline from yesterday before Italy sells bonds, testing investor appetite for European securities and supporting demand for the relative safety of U.S. debt.
Spanish 10-year yields surged to as high as 6 percent yesterday, approaching the levels that pushed Greece, Ireland and Portugal into bailouts. The U.S. plans to auction $13 billion of 30-year bonds. BlackRock Inc. (BLK), the world’s biggest asset manager, said a so-called bear market in Treasuries is “extremely unlikely.”
“The market is largely waiting for the Italian auction,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The uncertainty is mildly supporting Treasuries.”
The benchmark 10-year note yielded 2.03 percent at 9:25 a.m. in London, according to Bloomberg Bond Trader prices. The price of the 2 percent security maturing in February 2022 was unchanged at 99 21/32.
Italy is scheduled to sell as much as 5 billion euros ($6.56 billion) of debt maturing in 2015, 2020 and 2023 after borrowing costs increased as it auctioned bills yesterday.
“There’s still a lot of worry about Spain and Italy,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “Where else are people going to buy if they want to put their money in a safety box? You need to choose the U.S. market.”
The 10-year yield will rise to 2.4 percent at the end of June as the economy improves, according to CIBC.
Yield Forecast
Ten-year Treasury yields may be between 2.5 percent and 3 percent in the months ahead, Robert Doll, chief equity strategist at New York-based BlackRock, wrote in a note to clients yesterday.
“For yields to move beyond that, however, would require either a significant acceleration in economic growth or a marked increase in inflation expectations -- neither of which appears likely,” Doll wrote. “It seems extremely unlikely that we are at the forefront of a significant bond bear market.”
Treasuries fell yesterday, interrupting a five-day rally.
“Risk markets have shown a modicum of stability after the recent sell-off, taking the shine off Treasuries,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The domestic backdrop suggests Treasuries are poor value.”
Gross’s Holdings
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., cut holdings of U.S. government securities last month to 32 percent of assets, the lowest level since December, and raised mortgages to the most since 2009. U.S. government and Treasury debt represented 37 percent of the $252.4 billion Total Return Fund (PTTRX) in February, according to a report on the company’s website yesterday.
Federal Reserve Vice Chairman Janet Yellen endorsed the central bank’s “highly accommodative” policy, saying it probably won’t achieve its goal of full employment for years.
“Over the next several years, I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below” the Fed’s 2 percent target, Yellen said yesterday in a speech in New York. She said housing and the European debt crisis are among “significant headwinds” that may restrain growth.
The central bank is scheduled to buy as much as $5 billion of Treasuries due from May 2020 to February 2022 today, according to the New York Fed’s website. The central bank is replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.
Producer Prices
The Labor Department is scheduled to report producer prices today and consumer prices tomorrow. Both rose 0.3 percent in March, after advancing 0.4 percent in February, according to Bloomberg News surveys of economists. The trade deficit was probably little changed, a separate report today will show, economists said.
Five-year Treasury futures may rise to a record if they break above a key resistance level, Credit Suisse Group AG said, citing trading patterns.
An advance beyond 123 19/32, the 78.6 percent Fibonacci retracement of the 2012 decline will open the way for a rally to a record high of 124 4/32, strategists led by David Sneddon, head of technical analysis in London, wrote in a note.
The five-year contract expiring in June 2012 was unchanged today at 123 10/32. Resistance refers to an area where sell orders may be clustered. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.
30-Year Sale
The 30-year bonds being sold today yielded 3.21 percent in pre-auction trading, versus 3.383 percent at the previous auction in March. Investors bid for 2.7 times the amount of debt offered last month, versus the average of 2.65 percent for the past 10 of auctions.
The government is today scheduled to announce the size of a five-year sale of Treasury Inflation Protected Securities scheduled for April 19. The auction will be for $16 billion, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
