BLBG:Treasuries Fall Before U.S. Sells $66 Billion Of Debt
Treasury 10-year notes fell for the first time in four days as the U.S. prepared to auction $66 billion of debt this week.
U.S. government securities also declined as European stocks advanced, damping demand for benchmark notes whose yields have dropped half a percentage point in the past three months. Ten- year rates slid five basis points yesterday on speculation a 100 billion-euro ($125 billion) bailout of Spanish banks will fail to contain Europe’s debt crisis.
The auctions “are one aspect, but a slightly firmer tone to equities is also prompting a very modest amount of profit- taking,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “I expect more volatility, as there is little near-term prospect of anything that delivers either a final body blow to the euro-zone crisis or more than five minutes of respite.”
The U.S. 10-year yield climbed three basis points, or 0.03 percentage point, to 1.62 percent at 7:17 a.m. New York time, according to Bloomberg Bond Trader data prices. The 1.75 percent note due May 2022 dropped 1/4, or $2.50 per $1,000-face amount, to 101 1/4. U.S. 30-year yields also rose three basis points, to 2.74 percent.
The Stoxx Europe 600 (SXXP) index of shares climbed 0.4 percent, while the yield on German 10-year bunds added seven basis points.
U.S. 10-year yields fell from 2.30 percent on April 4 to a record-low 1.44 percent on June 1 as deadlocked Greek elections deepened euro-area turmoil. Voters in Greece will go to the polls again on June 17.
U.S. Sales
The U.S. will sell $32 billion of three-year notes today, $21 billion of 10-year securities tomorrow and $13 billion of 30-year bonds on June 14.
The auctions will “help offset any flight-to-Treasury momentum ahead of the Greek elections,” Patrick Gouraud, a fixed-income strategist at Societe Generale SA in New York, wrote in a note dated today.
The Federal Reserve plans to buy as much as $2.25 billion of Treasuries due from February 2036 to May 2042 today under its program known as Operation Twist, which aims to replace holdings of shorter-term securities with longer-term bonds, according to the Fed Bank of New York’s website.
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing, or QE, from December 2008 to June 2011 to cap borrowing costs and stimulate the economy.
Pre-Auction Yield
The three-year Treasuries on offer today yielded 0.37 percent in pre-auction trading, compared with 0.36 percent at the previous offering on May 8. Investors bid for 3.65 times the amount for sale last month, versus an average of 3.38 for the previous 10 auctions.
U.S. government securities gained 3.2 percent this quarter through yesterday, compared with a 1.9 percent return on the nation’s corporate debt, Bank of America Merrill Lynch data showed.
“I expect the Treasury auctions this week to fare well,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc. “Investors clearly have no intention of shifting their money into riskier assets like stocks and corporate bonds at the moment.”
Fed Measures
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., raised the Newport Beach, California-based company’s holdings of Treasuries in May.
The company increased the proportion of U.S. government and Treasury debt in its $260 billion Total Return Fund (PTTRX) to 35 percent from 31 percent of its asset holdings in April, it said on its website. Holdings of mortgages dropped to 52 percent from 53 percent.
Fed Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth, underscoring his preference for more stimulus.
“I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans, who doesn’t vote on the Federal Open Market Committee this year, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu airing today.
Fed Bank of Atlanta President Dennis Lockhart, who does have an FOMC vote, said yesterday recent U.S. economic reports indicate the recovery may be losing momentum. Lockhart reiterated his view that policy makers need to take further action to stimulate the economy if it becomes clear growth is slowing.
“The market is pricing in some action from the Fed, and the focus has clearly shifted to QE,” Eric Green, head of rate strategy in New York at TD Securities Inc., wrote in a note to clients today.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net;
