Treasury Notes Advance on Speculation Greece May Drop From Euro
May 06, 2011, 5:26 PM EDTBy Susanne Walker and Daniel Kruger
May 6 (Bloomberg) -- Treasury notes gained for the seventh day as speculation Greece may leave the European Union drove investors to the safety of U.S. government debt.
U.S. two-year note yields fell to the lowest level since March 17 after Der Spiegel magazine reported that debt-strapped Greece is considering withdrawing from the European monetary union. Treasuries dropped earlier after a government report showed the U.S. added more jobs than forecast in April. U.S. stocks trimmed gains and commodities erased an earlier advance.
“It’s all Greece,” said Anthony Cronin, a Treasury trader at Societe Generale in New York, one of the 20 primary dealers that trade with the Federal Reserve. “We’ve seen the front end really catch a bid. There were a lot of shorts set after payrolls and they’re rushing to cover.” A short position is a bet that an asset will decline in value.
The yield on the two-year note fell two basis points, or 0.02 percentage point, to 0.55 percent at 4:59 p.m. in New York, according to Bloomberg Bond Trader data. The 0.625 percent security due in April 2013 rose 1/32, or 31 cents $1,000 face amount, to 100 5/32.
Yields on 10-year notes were little changed at 3.15 percent, after reaching as much as 3.23 percent. U.S. 30-year bond yields rose three basis points to 4.29 percent. Six-month bill rates was unchanged at 0.056 percent after touching a record low of 0.03 percent.
Hedge-fund managers and other large speculators increased their net-long position in two-year note futures in the week ending May 3, according to U.S. Commodity Futures Trading Commission data.
Greece Reports
Speculative long positions, or bets prices will rise, outnumbered short positions by 221,904 contracts on the Chicago Board of Trade. Net-long positions rose by 43,284 contracts, or 24 percent, from a week earlier, the Washington-based commission said in its Commitments of Traders report.
The euro today extended its losses against the dollar after Der Spiegel magazine reported that Greece is considering withdrawing from the euro zone and reintroducing its own currency, and that the European Commission called a meeting to discuss the move.
European finance officials are meeting in Luxembourg for an unscheduled meeting that may discuss proposals for restructuring Greek debt, said two European officials familiar with the situation. A German official said the discussions would include a German paper on options for confronting Greece’s growing debt load, which has spurred speculation by investors that a restructuring was a likely outcome.
Greece has been lobbying for easier terms on the 110 billion euros ($164 billion) of bailout loans as speculation of a default mounts and officials put the finishing touches on a 78 billion-euro lifeline for Portugal.
Euro Issues
“One concern is what would happen to euro banks that own the debt, and is it going to be marked down further, creating more of an economic issue,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.
The Standard & Poor’s 500 Index rose 0.4 percent after climbing as much as 1.4 percent. The Thomson Reuters/Jefferies CRB Index of commodities fell 1.1 percent, while the dollar rallied 1.5 percent to $1.4321 per euro.
Treasuries earlier fell after a report that payrolls increased 244,000 last month after a revised 221,000 gain the prior month, the Labor Department said today in Washington. Economists projected an April rise of 185,000, according to the median estimate in a Bloomberg News survey. Employment excluding government jobs jumped the most in five years.
The jobless rate rose to 9 percent from 8.8 percent in March, the first increase since November.
Treasuries rose yesterday, pushing the yield on the 30-year bond to 4.26 percent, the lowest since Dec. 7, as investors fled risk assets amid a forecast for weaker economic growth and lower inflation. Commodities plunged yesterday the most since 2009, led by oil and silver, and stocks had posted the biggest three- day drop since March. The Standard & Poor’s 500 Index rose 0.7 percent today, while commodities dropped for a fifth day.
Fed Stance
The Fed has held its target rate for overnight lending between banks at zero to 0.25 percent since December 2008. Policy makers affirmed at their April 27 meeting the plan to buy Treasuries through June.
The Fed purchased $6.7 billion of Treasuries maturing from November 2013 to October 2014 today.
The U.S. will sell $32 billion in three-year notes, $24 billion in 10-year debt and $16 billion in 30-year bonds on three consecutive days beginning May 10, equaling the average forecast in a Bloomberg News survey of 19 of 20 primary dealers on May 2.
Yields on 10-year notes will rise to 3.60 percent by the end of the second quarter, according to the average forecast in a Bloomberg News survey of banks and securities firms, with the most recent forecasts given the heaviest weightings.
“As long as the economy is in recovery mode, the risk-on trade wins,” said William Larkin, a fixed-income portfolio manager in Salem, Massachusetts, at Cabot Money Management, which manages $500 million. “Rates are likely to rise over the next 12 months as the economy gains traction.”
--Editors: Paul Cox, Greg Storey
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
