Bloomberg News

Treasuries Snap Gain on Concern Slide in Yield to Hurt Auctions

September 12, 2011

Sept. 12 (Bloomberg) -- Treasuries snapped a rally from last week on concern benchmark yields that are within three basis points of a record low will erode demand when the U.S. sells $66 billion of notes and bonds in three auctions.

Ten-year yields, which guide consumer and company borrowing costs, were 1.67 percentage points more than the top of the Federal Reserve’s target range for overnight loans. The spread matched the lowest level since 2008. The government is scheduled to sell $32 billion of three-year notes today, $21 billon of 10- year debt tomorrow and $13 billion of 30-year bonds on Sept. 14.

“Treasuries aren’t good value,” said Roger Bridges, who oversees the equivalent of $15.6 billion of debt as the Sydney- based head of bonds at Tyndall Investment Management Ltd., a unit of Japan’s Nikko Asset Management Co. “Yields will rise sooner rather than later.”

Ten-year rates were little changed at 1.92 percent as of 1:30 p.m. in Tokyo, according to Bloomberg Bond Trader. The price of the 2.125 percent note due in August 2021 was 101 25/32.

The record low of 1.8942 percent was set Sept. 9. U.S. seven-year yields dropped to 1.3058 percent today in early Asian trading, the least based on Federal Reserve data that began in 1969, before climbing to 1.34 percent.

Bridges said he has held a smaller percentage of Treasuries than recommended by benchmarks that he uses to gauge performance. Yields will climb as European officials address a debt crisis in the region, he said.

Concern that Greece will default helped spur demand for the relative safety of Treasuries last week.

Members of Chancellor Angela Merkel’s government are discussing how to strengthen German banks in case Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, officials said Sept. 9.

Japan’s 10-year note yielded 1 percent, versus this year’s low of 0.97 percent set Aug. 19.

--Editors: Nate Hosoda, Rocky Swift

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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