Bloomberg News

Treasuries Snap Decline Before Report on U.S. Housing Prices

September 26, 2011

Sept. 27 (Bloomberg) -- Treasuries snapped their steepest two-day loss in a month before an industry report that may show U.S. home prices declined in July.

Two-year yields were the highest in a month as the U.S. prepared to sell $35 billion of the securities today, the first of three note auctions this week totaling $99 billion. The S&P/Case-Shiller index of property values in 20 cities fell 4.4 percent from July 2010, the 10th year-on-year drop, according to the median forecast of economists surveyed by Bloomberg News.

“The market needs time to confirm an improvement in economic conditions before yields can rise,” said Kei Katayama at Daiwa SB Investments Ltd. in Tokyo. “The economic figures are mixed.” Katayama helps manage the equivalent of $64.9 billion, including Asia’s second-biggest bond fund as leader of the foreign fixed-income group.

U.S. 10-year rates fell one basis point to 1.90 percent as of 11:09 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2.125 percent security due in August 2021 rose 1/32, or 31 cents per $1,000 face amount, to 102 2/32. The yield climbed 18 basis points over the last two sessions, the biggest back-to-back increase since Aug. 24.

Today’s report on home prices follows Commerce Department data yesterday that showed purchases of new houses in the U.S. declined in August to a six-month low.

Two-Year Auction

The two-year notes being sold today yielded 0.23 percent in pre-auction trading, rising from 0.222 percent at the prior sale on Aug. 23, which was a record low.

Investors bid for 3.44 times the amount for sale in August, the most since May at the monthly auctions.

Indirect bidders, the category of investors that includes foreign central banks, bought 31.6 percent of the notes, the highest level since April.

Treasuries fell yesterday, pushing 10-year yields up from almost record lows, as stocks gained after finance chiefs including Treasury Secretary Timothy F. Geithner urged Europeans to step up efforts to contain the debt crisis.

Yields on 30-year bonds also rose yesterday, after tumbling last week the most in almost three years as the Federal Reserve said it would buy longer-term debt to keep borrowing costs low.

“Investors are taking more risk,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at United Nations Federal Credit Union in New York. “We’ve rallied so strong that we will be hard pressed to move much lower in rates unless another shoe drops in Europe.”

U.S. 10-year yields fell to a record 1.6714 percent on Sept. 23.

Japan’s two-year notes were little changed with a yield of 0.125 percent. The government is scheduled to sell 2.6 trillion yen ($34.1 billion) of the securities today.

--With assistance from Cordell Eddings and Susanne Walker in New York. Editors: Nate Hosoda, Garfield Reynolds

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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