Bloomberg News

Treasuries Fall as Greek Confidence Vote Eases Refuge Appeal

June 21, 2011

June 21 (Bloomberg) -- Treasury 10-year notes dropped for a third day in the longest losing streak since March after Greece’s government won a confidence vote, easing the refuge appeal of U.S. government debt.

Greek Prime Minister George Papandreou garnered the support of 151 lawmakers in a confidence motion, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid for the country.

“Some of the safety bid comes out of the market as some of the uncertainty about whether the vote would pass has been relieved,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 20 primary dealers that trade directly with the Federal Reserve. “It remains to be seen how successful the government will be implementing austerity measures, and even what happens after that.”

Yields on 10-year notes rose three basis points, or 0.03 percentage point, to 2.99 percent at 6:27 p.m. in New York, according to Bloomberg Bond Trader prices. The 10-year note yields fell on June 16 to 2.88 percent, the lowest level since December.

Five-year securities slipped before tomorrow’s Federal Reserve monetary-policy decision on speculation the U.S. economy isn’t weak enough to justify yields that touched 2011 lows last week. U.S. debt pared its drop earlier after the International Monetary Fund said in a report that Spain’s efforts to repair its economy are “incomplete” and risks are “considerable.”

Greece Vote

A total of 155 lawmakers supported the motion in the 300- seat parliament in Athens, with 143 voting against, the speaker, Filippos Petsalnikos, said in remarks carried live state-run Vouli TV. Papandreou reshuffled his cabinet and sought the approval of the chamber after fending off a revolt within his Pasok party last week. That came after opposition parties rejected his call for a national unity government.

Treasuries were headed for a third monthly gain on speculation economic growth is slowing as well as concern nations including Greece may struggle to avoid default. Government debt has returned 0.5 percent in June after advances of 1.6 percent and 1.2 percent in the previous two months, according to a Bank of America Merrill Lynch index.

The U.S. government must do more to support employment growth, according to Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund.

Gross Outlook

“We should not rely solely on job or corporate-direct payroll tax credits because corporations may not take enough of that bait,” Gross wrote in a monthly investment outlook published on Pimco’s website. “Government must step up to the plate, as it should have in early 2009.”

Nonfarm payrolls grew in May by 54,000, the smallest increase in eight months, after a gain of 232,000 in the previous month, the Labor Department reported June 3. The median forecast of 89 economists in a Bloomberg News survey was for an increase of 165,000. The jobless rate hit a 26-year high of 10.1 percent in October 2009 and was 9.1 percent last month.

Sales of previously owned U.S. homes dropped 3.8 percent in May to a six-month low after a revised 1.8 percent decrease in the previous month, the National Association of Realtors reported today. The median forecast of 69 economists in a Bloomberg News survey was for a 5 percent decrease.

Outlook on Fed

While Fed Chairman Ben S. Bernanke will probably delay the central bank’s exit from record stimulus, he won’t resort to additional asset purchases, according to a Bloomberg News survey of economists.

Seventy-nine percent of 58 economists expect Bernanke to sustain the Fed’s balance sheet at current levels until October or later, compared with 52 percent who held that view before the central bank’s last policy meeting in April, according to a Bloomberg News survey conducted last week.

The FOMC began a two-day session today in Washington and is due to issue a statement tomorrow at about 12:30 p.m., with Bernanke scheduled to meet the press at 2:15 p.m.

The Fed purchased $4.9 billion of U.S. debt maturing from December 2016 to May 2018 today under the $600 billion second round of quantitative easing expiring in June.

Treasury Secretary Timothy F. Geithner said today in Washington he sees “a lot of progress” in bipartisan spending and deficit talks that have been taking place and that the Aug. 2 deadline is “imposed by reality.”

“If the debt ceiling has not been raised by then, then we would put the U.S. sovereign ratings on rating watch negative. Andrew Colquhoun, head of Fitch Ratings’s Asia-Pacific sovereigns team, said in an interview in Singapore today. “We think it’s very likely that the debt ceiling will be raised in good time.”

--Editors: Dennis Fitzgerald, Dave Liedtka

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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