BLBG:Treasuries Head For 1st Weekly Loss Since March On Euro Optimism
Treasuries headed for their first weekly loss in two months amid speculation Europe is moving closer to new measures to contain the debt crisis.
U.S. 10-year notes halted a nine-week rally as Italian Prime Minister Mario Monti said he can help bring round Germany to acting in Europe’s “common good,” with most leaders supporting joint euro-area bonds. Treasuries were still poised for a monthly gain as concern Greece will abandon the currency bloc as it battles a recession underpinned demand for the relative safety of U.S. debt. German bonds declined after yields reached all-time lows yesterday.
“This big push into bunds in Europe and Treasuries is just stalling a little,” said Peter Schaffrik, head of European interest-rate strategy at Royal Bank of Canada on London. Events in Europe have been fueling “outflows out of the crisis countries into the more haven ones, and I think that has stopped for the time being,”
The 10-year yield was little changed at 1.77 percent at 10:52 a.m. London time, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 was at 99 26/32. The yield has climbed five basis points, or 0.05 percentage point, this week. The last time yields rose on a weekly basis was March 16.
Monthly Return
Treasuries returned 1 percent this month as of yesterday, Bank of America Merrill Lynch indexes show, reflecting demand for the relative safety of U.S. debt. They climbed 1.5 percent in April, after making a 1.3 percent loss in the first quarter.
Treasuries markets are scheduled to close at 2 p.m. New York time and remain shut on May 28 in observance of Memorial Day in the U.S., according to the Securities Industry and Financial Markets Association in New York.
“Europe can have euro bonds soon,” Monti said on Italian television station La7 yesterday. Greece will probably remain in the 17-nation currency region, he said.
The difference between two-year swap rates and same- maturity U.S. debt shrank to 33 basis points from this month’s high of 42 basis points on May 16, indicating demand for higher- yielding assets.
Swap rates are usually higher than those on government debt because they are based on bank transactions that contain credit risk.
Treasury “yields will stay low, but the rally is losing momentum,” said Hideo Shimomura, who helps oversee the equivalent of $75.3 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest publicly traded bank. “European governments are defending the euro. That’s the priority. The fear of the destruction of the euro will fade.”
Shimomura said he’s sticking with his bets on longer-term Treasuries, the ones that gain most in a rally.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
