U.S. 10-Year Yield Has Biggest Two-Day Drop in a Year on Greece
July 11, 2011, 5:32 PM EDTBy Daniel Kruger and Cordell Eddings
July 11 (Bloomberg) -- Treasuries rose, pushing 10-year note yields to the biggest two-day loss in more than a year, as Europe’s sovereign-debt crisis intensified and before data this week forecast to show the U.S. economic recovery is slowing.
U.S. two- and 10-year yields fell to the lowest in two weeks as European finance chiefs clashed over how to dig Greece out of its financial hole. Italian 10-year yields rose to the highest in more than a decade. Federal funds futures contracts indicated traders pushed back forecasts for when the Federal Reserve will start raising interest rates until December 2012.
“Europe’s scaring people more than anything right now,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The longer it goes with the uncertainty, the more people are just going to throw in the towel, sell stocks and buy Treasuries.”
Ten-year note yields dropped 11 basis points, or 0.11 percentage point, to 2.92 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 2.91 percent, the lowest since June 28. They have dropped 21.9 basis points over the past two days. The 3.125 percent note due May 2021 rose 29/32, or $9.06 per $1,000 face amount, to 101 3/4. Two-year yields fell four basis points to 0.36 percent, the least since June 27.
Yields on 10-year notes fell 22.2 basis points on Friday and Monday, June 4 and 7, 2010, as investors sought refuge amid concern Europe’s debt crisis would worsen and after U.S. payrolls for May 2010 added fewer jobs than forecast.
Stocks tumbled today, with the Standard & Poor’s 500 Index dropping 1.8 percent.
Interest-Rate Bets
Thirty-day federal funds futures contracts for delivery in December next year yielded 0.44 percent, indicating investors expect the Fed will wait until then to raise rates. The yield has declined from 1 percent in May.
Sales at U.S. retailers slipped 0.1 percent in June, after declining 0.2 percent in May, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department report on July 14. A government report the following day will show the cost of living decreased last month for the first time in a year, according to a separate survey.
Ten-year yields dropped 11 basis points on July 8 after the Labor Department said the U.S. added 18,000 jobs in June, compared with a Bloomberg survey forecast of 105,000.
“The disappointing employment report has lowered people’s expectations of this stage of the recovery,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
Obama Pressing Congress
President Barack Obama said he’ll continue to press congressional leaders for “the largest possible deal” on a package of deficit cuts as he seeks to raise the $14.3 trillion federal debt ceiling before the U.S. exhausts its borrowing authority on Aug. 2. He spoke at a White House press conference.
Obama said he won’t sign a short-term extension of the debt limit and plans to continue meeting with members of Congress every day until an acceptable agreement is reached.
A U.S. default “would be a shocker,” said Andrew Bosomworth of Pacific Investment Management Co., the world’s largest bond fund manager. “Yields on U.S. Treasury bonds at present do not reflect the appropriate risks, be those inflation risks, be those risks of the government not coming to an agreement on the debt ceiling. We’re not buying those bonds.”
Bosomworth spoke in an interview on Bloomberg Television’s “Countdown” with Francine Lacqua and Owen Thomas.
The yield on the one-month Treasury bill maturing Aug. 4, two days after the Aug. 2 deadline for the U.S. to reach an agreement on extending the debt ceiling or risk default, fell to 0.01 percent, from 0.02 percent on July 8.
‘No Contingency Plan’
“The bill market isn’t pricing in any possibility of a default,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 primary dealers that trade with the Fed. “There is no contingency plan. Everyone is just crossing their fingers and trusting that policy makers will fix this.”
The euro weakened for a second day as European finance ministers weighed how to get private bondholders to maintain their exposure to Greek debt in a way that doesn’t prompt credit-rating companies to declare a formal default. The aim is to keep governments from picking up the tab when bonds come due between 2012 and 2014.
The 17-nation currency tumbled as much as 2 percent to $1.3987, the lowest level since May 23. Italian bonds plunged as the euro-area finance chiefs failed to convince investors the region’s second-most indebted nation will avoid following Greece, Ireland and Portugal in needing a bailout. The yield on the country’s 10-year bond rose 41 basis points to 5.68 percent, the highest since 2000.
Treasury Auctions
The U.S. plans to auction $32 billion of three-year notes tomorrow, $21 billion of 10-year debt on July 13 and $13 billion of 30-year bonds on July 14. The sizes are unchanged from the last time the U.S. auctioned these securities in June.
The $66 billion of offerings will be the first note and bond sales since the end on June 30 of the Fed’s $600 billion of Treasury purchases in its second round of quantitative easing.
“Dealers will have no buybacks to put paper back to after the auctions,” said John Briggs, a U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, a primary dealer. “Normally I would have said I’d be concerned. But as long as we have this flight-to-quality bid based on Europe, I’m not as concerned.”
--With assistance from Susanne Walker in New York. Editors: Greg Storey, Paul Cox
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
