Bloomberg News

Treasury 30-Year Bonds Drop Before $13 Billion U.S. Auction

September 14, 2011

Sept. 14 (Bloomberg) -- Treasury 30-year bonds dropped before the $13 billion auction of the securities on speculation European officials will take measures to contain the region’s sovereign-debt crisis.

Two-year notes gained on bets the Federal Reserve will lower interest on reserves banks keep with the central bank. Longer-term government debt securities rose earlier as Austria’s finance ministry said a parliamentary vote on an overhaul of the European Financial Stability Facility will be delayed.

“People are very cautious right now given the yield levels we are at now,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of the 20 primary dealers obliged to participate in debt sales.

Yields on 30-year bonds gained one basis point, or 0.01 percentage point, to 3.34 percent at 12:32 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.75 percent securities due in August 2041 dropped 1/4, or $2.50 per $1,000 face amount, to 107 21/32.

Benchmark 10-year note yields increased two basis points to 2.01 percent. The yields fell on Sept. 12 to a record low 1.8770 percent. Two-year yields slid two basis points to 0.18 percent.

The 30-year bonds being sold today yielded 3.345 percent in pre-auction trading, compared with 3.750 percent at the previous sale of the securities Aug. 11 as speculation Fed policies will stoke inflation sapped demand at that $16 billion offering.

August Bond Drop

Bonds tumbled that day after the government sold the securities. The yield gained as much as 29 basis points, the most on an intraday basis since November 2008.

Investors bid for 2.08 times the amount of debt offered last month, the least since February 2009. Indirect bidders, the investor group that includes foreign central banks, bought 12.2 percent of the securities, the lowest level since 2008.

The long bonds have returned 23 percent this year, compared with 15 percent for 10-year notes and 1.4 percent for two-year securities, Bank of America Merrill Lynch indexes show.

At its next meeting on Sept. 20-21, the Federal Open Market Committee may decide to swap its holdings of short-term Treasuries with long-term securities in a bid to cut borrowing costs and boosts the economy. The Fed may also lower its interest payments on excess reserves deposited by banks.

“We now see a greater than 50 percent chance of a cut in interest on excess reserves at next week’s FOMC meeting,” Zach Pandl, senior economist at Goldman Sachs Group Inc. in New York, said today in a research note to clients. “We believe the committee would cut to 10 basis points instead of zero.”

Retail Sales

Treasuries pared their drop earlier today after the Commerce Department reported that U.S. retail sales were flat in August after a revised increase of 0.3 percent in the prior month. The median forecast of 83 economists in a Bloomberg News survey was for 0.2 percent gain.

The Labor Department’s producer price index was unchanged last month after a 0.2 percent increase in July, matching the median forecast in a separate Bloomberg News survey.

“Retail sales are weaker than anticipated, but there wasn’t a huge amount of hope for the numbers,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

Italian Prime Minister Silvio Berlusconi’s government won a confidence vote in the Chamber of Deputies on its 54 billion euro ($74 billion) austerity package, paving the way for final approval of the legislation.

Euro Bonds

European Commission President Jose Barroso said he is close to proposing options on joint euro-area bond sales, putting officials in Brussels on a collision course with Germany over steps to contain the debt crisis.

“The commission will soon present options for the introduction of euro bonds,” Barroso told the European Parliament in Strasbourg, France, today, prompting applause from lawmakers who have backed the idea. “Some of these options could be implemented within the terms of the current treaty; others would require treaty change.”

China’s Caijing magazine cited Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission, as saying the country would buy the bonds of euro-area nations hit by the debt crisis.

Premier Wen Jiabao, facing calls to widen support for indebted European countries, indicated at the World Economic Forum in Dalian, China, that developed nations should cut deficits and open markets rather than rely on the Asian nation to bail out the world economy.

In Austria, parliament will now call a special meeting for the finance committee that will have the proposed upgrade of the European rescue fund on the agenda, according to Harald Waiglein, a spokesman for the ministry.

--Editors: Dennis Fitzgerald, Dave Liedtka

To contact the reporters on this story: Cordell Eddings in New York at; Susanne Walker in New York at

To contact the editor responsible for this story: Dave Liedtka at

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