Bloomberg News

Treasury 10-Year Yields Rise to Month’s High as Greek Risk Eases

June 30, 2011

June 30 (Bloomberg) -- Treasuries fell, pushing benchmark 10-year note yields to the highest level in June, as Greece’s parliament approved a second bill to authorize austerity measures needed for further financial aid.

Ten-year notes slid for a fourth straight day in the longest losing streak since February as stocks rose, a measure of U.S. business activity improved and the Federal Reserve ended a $600 billion program of debt buying. Bonds pared gains in the second quarter as the three government note auctions this week drew poor demand.

“We have clearly taken out the Greek risk as far as it impacted Treasuries,” said David Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “From this day forward, we will have to deal with the Treasury supply on our own. We are adjusting to the new world.”

Yields on 10-year notes increased five basis points, or 0.05 percentage point, to 3.16 percent at 5:14 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent securities maturing in May 2021 dropped 13/32, or $4.06 per $1,000 face amount, to 99 22/32.

The 10-year note yields touched 3.22 percent, the highest level since May 19. Yields on two-year notes were little changed at 0.46 percent after reaching 0.51 percent, the highest level since May 26. The five-year note yields advanced seven basis points to 1.76 percent after increasing to 1.81 percent, also the highest level since May 26.

Gain in Stocks

The Standard & Poor’s 500 Index rose for a fourth day, rallying 1 percent. Crude oil for August delivery gained 0.4 percent to $95.14 a barrel

Treasuries returned 2.6 percent this quarter as of yesterday, after losing 0.1 percent in the three months ended March 31, according to Bank of America Merrill Lynch indexes. U.S. debt has gained 2.5 percent in 2011.

Goldman Sachs Group Inc. said investors should sell five- year Treasury notes on speculation yields will rise to 2.2 percent, a level last reached in April.

Investors should exit the trade if the yield falls to 1.4 percent, London-based strategists Francesco U. Garzarelli and Constantin Burgi wrote in a research note.

The Fed purchased $4.909 billion of Treasuries maturing from June 2017 to June 2018 today in its last operation under the second round of quantitative easing.

The buyback included $4.405 billion of the $16.252 billion in seven-year notes that primary dealers purchased yesterday at the U.S. government’s seven-year note auction. The central bank ended up with 15 percent of the $29 billion total sold.

Auction Demand

Yesterday’s offering produced the lowest participation in more than two years from a class of investors including foreign central banks. The $35 billion government auction of five-year securities on June 28 drew the lowest demand in a year. A record low yield of 0.395 percent at the $35 billion offering of two- year notes a day earlier drew the weakest demand from the group including central banks since February 2008.

Bonds also dropped today as the Institute for Supply Management-Chicago Inc.’s purchasing managers’ index climbed to 61.1 this month from 56.6 in May. The median forecast of economists in a Bloomberg News survey was for a drop in 54. Figures greater than 50 signal expansion.

“It shows that the economy is not falling off a cliff, so we need to give some of that back if it’s not contracting as much as many had feared,” said Anthony Cronin, a trader in New York at Societe Generale SA, which as one of the 20 primary dealers is obligated to participate in U.S. auctions.

Greece Austerity

Greek Prime Minister George Papandreou’s drive to stave off the euro area’s first sovereign default stayed on track after lawmakers backed a bill to authorize an austerity plan required to keep rescue aid flowing.

The premier won the vote by 155 to 136, allowing him to implement a 78 billion-euro ($112 billion) package of tax increases and asset sales that was a condition of receiving further European Union aid.

“The news out of Greece is not a surprise, but it’s another hurdle that’s been crossed,” said Chris Ahrens, head U.S. rates strategist in Stamford, Connecticut, at UBS AG, a primary dealer. “The better performance of risk assets is weighing on Treasuries.”

Treasuries have rallied this quarter on speculation the U.S. economy is stalling and Europe’s sovereign-debt crisis may damp the global recovery.

Employers in America added the fewest jobs in eight months in May, and the unemployment rate increased to 9.1 percent, the Labor Department reported June 3.

Initial jobless claims fell by 1,000 to 428,000 in the week ended June 25, Labor Department figures showed today. Economists in a Bloomberg News survey projected a drop to 420,000.

President Barack Obama is trying to reach a compromise with Republican lawmakers who are seeking spending cuts before they agree to raise the nation’s borrowing limit, now capped at $14.3 trillion. The Treasury Department has said it has until Aug. 2 before its ability to pay the U.S. debt expires.

--With assistance from Cordell Eddings in New York and Matthew Brown in London. Editors: Dennis Fitzgerald, Greg Storey

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

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


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