Bloomberg News

U.S. 10-Year Notes Drop for Third Day as Greece Concern Eases

June 21, 2011

June 21 (Bloomberg) -- Treasury 10-year notes fell for a third straight day in the longest losing streak since March on speculation Greece’s government will survive a confidence vote and proceed with efforts to contain its debt crisis.

Five-year securities slipped before tomorrow’s Federal Reserve monetary-policy decision on speculation the 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.”

“The moves in the market are still all about the European peripheral sovereign issues,” said Larry Milstein, managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “We are still under 3 percent on the 10-year, which shows that fear still remains in the market.”

Yields on 10-year notes increased two basis points, or 0.02 percentage point, to 2.98 percent at 4:35 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent security due in May 2021 fell 5/32, or $1.56 per $1,000 face amount, to 101 8/32.

The 10-year note yields fell on June 16 to 2.88 percent, the lowest level since December. Yields on five-year notes climbed one basis point to 1.54 percent today.

The Standard & Poor’s 500 Index increased 1.3 percent, while crude oil for July delivery advanced 0.2 percent to $93.40 a barrel. The euro appreciated 0.7 percent to $1.4405.

Vote in Greece

If Greece’s Prime Minister George Papandreou survives today’s confidence vote, he will seek approval in parliament next week for a five-year economic plan to help persuade international officials to lend additional financial support. Luxembourg Prime Minister Jean-Claude Juncker said yesterday that Papandreou assured him the government would do everything to avoid defaulting.

While Spain’s government has implemented a “wide-ranging policy response” to its sovereign-debt crisis over the past year, “there can be no letup in the reform momentum,” the IMF said in its report.

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.

Gross on Employment

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.

“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.”

--With assistance from Shamim Adam in Singapore and Susanne Walker in New York. 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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