Bloomberg News

Treasuries Fall After Merkel, Sarkozy Signal Greece Commitment

September 15, 2011

Sept. 15 (Bloomberg) -- Treasury 10-year notes declined as Asian equities rose after Germany and France signaled a commitment to keeping Greece in the euro area, damping demand for the safest assets.

Benchmark bond yields were 12 basis points from a record low as Greek Prime Minister George Papandreou pledged to meet deficit-reduction targets, according to statements from governments in Athens, Berlin and Paris. Treasury-market bets on inflation were at the lowest in almost a year before a report that economists said will show consumer price gains slowed in August. The Federal Reserve is today scheduled to purchase up to $3.5 billion of Treasuries.

“Equity markets have recovered with a decent bounce and bond yields have gone back up toward the 2 percent mark,” said Grant Hassell, head of fixed income at AMP Capital Investors in Wellington, New Zealand. “This will be temporary and we will see long-end Treasury yields drift back down again and equities will remain volatile. There is no easy silver-bullet solution to the issues facing the globe at the moment.”

The benchmark 10-year note yield rose two basis points to 2 percent as of 6:51 a.m. in London, according to Bloomberg Bond Trader prices. The price of the 2.125 percent securities maturing in August 2021 fell 1/8, or $1.25 per $1,000 face amount, to 101 1/8. The 10-year yield slid to a record-low 1.8770 percent on Sept. 12.

Japan’s benchmark 10-year yield was unchanged at 0.99 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. It touched this year’s low of 0.97 percent on Aug. 19.

Stocks, Consumer Prices

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are “convinced” Greece will stay in the euro area as they faced international calls to step up efforts in fighting the region’s debt crisis.

The MSCI Asia Pacific Index rose 0.8 percent following a 1.4 percent advance by the Standard & Poor’s 500 Index yesterday.

The U.S. consumer-price index increased 0.2 percent in August, from 0.5 percent the previous month, according to the median forecast of economists surveyed by Bloomberg News before Labor Department data. Excluding energy and food costs, which are usually more volatile, the so-called core gauge rose 0.2 percent, matching July’s gain, the survey shows.

The difference between yields on 10-year notes and those on Treasury Inflation Protected Securities or TIPS, a gauge of trader expectations for consumer prices over the life of the securities, narrowed to 1.92 percentage points today from 1.98 on Sept. 9, set for the lowest level since October 2010.

Fed Purchases

The Fed will buy $2.75 billion to $3.5 billion of Treasuries due from September 2015 to February 2017 today, according to its website. The central bank is reinvesting the principal payments from agency debt and agency mortgage-backed securities holdings into longer-term Treasury securities.

Declines in Treasuries were limited on speculation the Federal Open Market Committee will decide to swap holdings of shorter-term Treasuries with longer maturities at its two-day policy meeting that starts Sept. 20. Fed Chairman Ben S. Bernanke is scheduled to speak today at a risk conference.

“Expectations for the FOMC still means it’s a very supportive environment for Treasuries with the market looking for some further policy accommodation,” said Tony Morriss, head of interest-rates research in Sydney at Australia & New Zealand Banking Group Ltd.

--Editors: Jonathan Annells, Benjamin Purvis

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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


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