BLBG:Treasuries Rise For 4th Day on Greece, Gross Warns on QE3
Treasuries gained for a fourth day as Greek politicians struggled to form a new government, adding to concern that Europe’s financial turmoil is deepening and boosting demand for the safest securities.
Ten- and 30-year yields both dropped to the lowest levels since February after Bill Gross at Pacific Investment Management Co. and Jan Hatzius at Goldman Sachs Group Inc. said investors should prepare for additional bond purchases by the Federal Reserve to combat a slowing economy. The U.S. will sell $24 billion in 10-year notes today after demand increased at an auction of three-year debt yesterday.
“With the euro-region crisis hotting up again in Greece and the U.S. economy looking a bit weaker, the 10-year Treasury yield has been able to break lower,” said Peter Chatwell, a fixed-income analyst at Credit Agricole SA in London. “With the three-year note auction having gone quite well yesterday, you’re not likely to see a concession before the 10-year auction.”
The 10-year yield fell four basis points, or 0.04 percentage point, to 1.81 percent at 7:17 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note maturing in February 2022 rose 10/32, or $3.13 per $1,000 face amount, to 101 23/32. The yield dropped to 1.80 percent, the lowest level since Feb. 1.
Greek Stalemate
A stand-off between Greek politicians since inconclusive elections on May 6 has reignited concern the nation will be unable to meet the terms of the two bailouts it has negotiated since May 2010. With parliament split, the country at the center of the debt crisis is again facing the risk of leaving the euro.
Spanish 10-year bond yields rose above 6 percent today for the first time since April 27, and Italy’s securities declined as the turmoil infected the region’s larger nations.
U.S. 30-year yields fell four basis points to 3 percent after declining to 2.9957 percent, the lowest since Feb. 2.
Treasuries have returned 0.6 percent this year, including reinvested interest, Bank of America Merrill Lynch indexes show. They gained 9.8 percent in 2011 as the European financial turmoil deepened.
A Fed decision to buy more bonds is “getting closer,” Pimco’s Gross, who runs the world’s largest mutual fund in Newport Beach, California, wrote on Twitter yesterday.
The U.S. central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, known as QE1 and QE2, from 2008 to 2011 to support the economy. A Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the least in six months.
‘Sensible Choice’
The U.S. economy is “dreary,” Goldman’s Hatzius wrote in a report yesterday.
“In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for U.S. monetary policy makers,” New York-based Hatzius wrote.
In its QE2 program, scheduled to end next month, the Fed is replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down.
The central bank plans to buy as much as $1.5 billion of Treasury Inflation Protected Securities today as part of the plan, targeting securities due from July 2018 to February 2042, according to the Fed Bank of New York’s website.
“Yields can go lower,” said Chungkeun Oh, an investor in Seoul at Industrial Bank of Korea (024110), South Korea’s largest lender to small- and medium-sized companies. “QE3 is quite possible. The noise from European countries is getting stronger.” Oh, who added to his Treasury holdings last month, said 10-year yields may fall another 10 basis points.
Record Low
Should the 10-year yield drop below 1.785 percent it would then target the 1.67 percent record low reached on Sept. 23, David Sneddon, head of technical analysis in London, wrote today in a note to clients.
The 10-year notes on sale today yielded 1.87 percent in pre-auction trading, compared with 2.043 percent the previous time the government sold the securities on April 11. The record low of 1.90 percent was set in January’s sale.
“The never-ending euro-zone crisis and the global duration grab that it has triggered has pushed U.S. 10-year yields to levels” that may lead to a record-low rate at the auction, George Goncalves, a strategist at Nomura Securities International Inc. in New York, wrote in a report yesterday.
Investors bid for 3.65 times the number of securities on offer at yesterday’s three-year auction. The notes drew a yield of 0.362 percent, compared with a forecast of 0.365 percent in a Bloomberg News survey before the sale.
The U.S. is scheduled to auction $16 billion of 30-year bonds tomorrow.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
