BLBG:Treasuries Decline as Cyprus Bailout Curtails Safety Bid
Treasuries fell for a second day after Cyprus avoided a default by agreeing to the outlines of an international bailout, reducing demand for the relative safety of U.S. debt.
Benchmark 10-year yields approached the highest level in a week as the deal limits demand for bonds amid signs the U.S. economy is improving. Consumer spending rose by the most in five months in February, economists said a report this week will show. Federal Reserve Chairman Ben S. Bernanke is scheduled to speak today in London. The accord between Cyprus and the so- called troika of international lenders paves the way for 10 billion euros ($13 billion) of loans.
“The first impression of the agreement is that they are making progress,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank by assets. “There’s less demand for safety. U.S. economic indicators have been much better recently. There is pressure for yields to go higher.”
The 10-year yield rose two basis points, or 0.02 percentage point, to 1.95 percent at 8:33 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2023 fell 6/32, or $1.88 per $1,000 face amount, to 100 15/32. The yield climbed to 1.97 percent on March 19, the highest level since March 15.
Euro Gains
The euro strengthened for a second day against the yen after the provisional agreement was struck that would make Cyprus the fifth country to tap a rescue since the euro debt crisis broke out in Greece in 2009. The European currency climbed 0.3 percent to 123.04 yen.
Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc of creditors in a night-time negotiating melodrama that threatened to rekindle the debt crisis and rattle markets.
Treasuries gained last week as efforts to assist Cyprus increased demand for refuge assets. They are still headed for a loss for March and for the first quarter.
U.S. government securities dropped 0.1 percent this month and 0.5 percent this year as of March 22, according to Bank of America Merrill Lynch indexes.
The MSCI All-Country World Index (MXWD) of stocks gained 6.1 percent in 2013 including reinvested dividends up to the end of last week, buoyed as the U.S. jobless rate fell to a four-year low of 7.7 percent.
Spending Rises
Personal spending rose 0.6 percent last month, after climbing 0.2 percent in January, according to a Bloomberg News survey of economists before the Commerce Department’s figures March 29. Other reports this week will show the biggest gain in durable goods orders in five months and strength in the housing market, separate surveys predict.
Treasuries are scheduled to close worldwide on March 29 for Good Friday, according to the New-York based Securities Industry and Financial Markets Association’s website.
The Fed is buying $85 billion of Treasury and mortgage debt a month to support the economy by putting downward pressure on borrowing costs.
Bernanke is scheduled to speak at a conference sponsored by the London School of Economics at 5:15 p.m. London time.
International Monetary Fund Chief Economist Olivier Blanchard, former U.S. Treasury secretary Lawrence Summers and former European Central Bank Governing Council member Axel Weber are also scheduled to take part in the discussion led by Bank of England Governor Mervyn King.
‘Second Gear’
The bear market in bonds is being delayed by Americans socking away money at 50 times the rate at which they take on debt to buy houses, cars and other items.
“The economy has been cruising in second gear,” Jim Vogel, a debt strategist at FTN Financial in Memphis, Tennessee, said in a March 21 telephone interview. “Leverage, however is still in neutral. Until it engages, a lot has to go right for U.S. economic growth to hit third gear. Investors remain committed to fixed-income.”
The amount U.S. households have in bank deposits, savings bonds, fixed-income mutual-funds and municipal securities increased $500 billion last year, equaling the most since 2007, according to FTN Financial, based on Fed data. Net household debt increased $10 billion, the least since 2005, as the economy grew slower than its historic pace.
Consumers have kept up the trend into 2013, according to strategists at FTN, helping to prevent a selloff in Treasuries and other debt assets after average annual gains of 6.3 percent since 2008.
To contact the reporter on this story: Anchalee Worrachate in London at o aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
