Bloomberg News

Treasuries Remain Lower After Retail Sales, Jobless Claims Data

July 14, 2011

July 14 (Bloomberg) -- Treasuries remained lower after reports on U.S. retail sales and initial claims for unemployment benefits.

U.S. government debt fell earlier as the U.S. prepared to sell $13 billion of 30-year bonds and after Moody’s Investors Service put the U.S. on review for a downgrade yesterday.

Yields on 10-year notes increased three basis points, or 0.03 percentage point, to 2.91 percent at 8:35 a.m. in New York, according to Bloomberg Bond Trader prices. They dropped to 2.81 percent on July 12, the lowest since Dec. 1.

Thirty-year bond yields rose three basis points to 4.20 percent before the Treasury auctions $13 billion of the debt at 1 p.m. in the third of three note and bond sales this week totaling $66 billion.

Sales at U.S. retailers stagnated in June as rising unemployment held consumers back. The 0.1 percent increase reported by the Commerce Department in Washington today compared with the median forecast of a 0.1 percent drop in the Bloomberg News survey of 80 economists.

Applications for jobless benefits decreased 22,000 in the week ended July 9 to 405,000, Labor Department figures showed today. Economists forecast 415,000 claims, according to the median estimate in a Bloomberg News survey.

The U.S. consumer price index dropped 0.1 percent in June after a rise of 0.2 percent in May, data tomorrow from the Labor Department is forecast to show.

Additional Support

The U.S. consumer price index dropped 0.1 percent in June after a rise of 0.2 percent in May, data tomorrow from the Labor Department is forecast to show.

U.S. bonds lagged behind gains in the world’s biggest debt markets as demand for their relative safety ebbed after Federal Reserve Chairman Ben S. Bernanke said the central bank is prepared to offer additional support to the economy. President Barack Obama twice walked out of a meeting with legislative leaders on cutting the federal deficit, increasing concern Moody’s will follow through on its warning.

German 10-year bunds advanced, sending yields down three basis points amid concern Europe’s debt crisis will worsen.

“Rating downgrades and 30-year placements are not the best combination,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. Today’s auction “will be a tricky one. I’m a bit negative. It’s a bit undecided in the Treasury market because there’s too much news to digest in addition to what’s going on in Europe.”

Moody’s Review

The U.S., rated Aaa by Moody’s since 1917, was put on review for the first time since 1995. The move was prompted by concern officials won’t raise the debt limit in time to prevent a missed payment, Moody’s said in a statement yesterday.

The rating would probably be reduced to the Aa range, the company said, implying a reduction of one to three steps.

Obama “abruptly” walked out of yesterday’s White House meeting with legislative leaders on the deficit, House Majority Leader Eric Cantor told reporters. Cantor said he told Obama “we are far apart” on proposals to cut the deficit and raise the borrowing limit.

The Treasury has said it has until Aug. 2 before its ability to pay the debt expires.

Bernanke told the House Financial Services Committee yesterday that failure to raise the debt limit would lead to a “huge financial calamity” that could add to unemployment. Unless the debt ceiling is raised, he said, the economy could be in greater peril than when Lehman Brothers Holdings Inc. went bankrupt in September 2008.

‘Damage to Confidence’

“There does seem to be such an impasse at this stage that I can’t rule out some kind of technical default,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “It’s the damage to confidence and future investment plans that’s the real risk.”

Bernanke also told Congress that the “economy still needs a good deal of support.”

Investors bid for 2.63 times the amount of 30-year debt offered last month. The 10-sale average is 2.64. Indirect bidders, the investor group that includes foreign central banks, bought 38.4 percent of the securities, compared with the 10- auction average of 39.7 percent.

--Editors: 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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