Sept. 26 (Bloomberg) -- Treasuries dropped, pushing 10-year note 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 rose after tumbling last week the most in almost three years as the Federal Reserve said it would purchase longer-term debt and sell shorter maturities to support the economy by keeping borrowing costs low. The Treasury Department is auctioning $99 billion of notes this week.
“Investors are taking more risk today, selling Treasuries as some of the ebb and flow of news out of the euro zone has been more constructive,” 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.”
Yields on 10-year notes increased seven basis points, or 0.07 percentage point, to 1.90 percent at 5:10 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 slid 19/32, or $5.94 per $1,000 face amount, to 102. Yields fell on Sept. 23 to 1.6714 percent, the lowest in Fed data beginning in 1953.
A drop of two points in 30-year bonds pushed yields up nine basis points to 2.99 percent after falling 41 basis points last week, the most since the depths of the financial crisis in December 2008. Yields on five-year notes advanced three basis points to 0.90 percent.
The extra yield investors get to hold 30-year bonds instead of five-year notes increased to 2.09 percentage points after dropping on Sept. 22 to 2.02 percentage points, the narrowest on a closing basis since January 2010. The average is 2.51 percentage points this year and 1.60 percentage points over the past five years.
The Standard & Poor’s 500 Index rallied 2.3 percent after dropping 6.5 percent last week. The Stoxx Europe 600 Index added 1.9 percent. Crude oil for November delivery gained 2 percent to $81.47 a barrel in New York.
Treasuries due in 10 or more years have returned 28 percent in 2011, exceeding the 24.4 percent gain in all of 2008, according to Bank of America Merrill Lynch indexes. Not since 1995, when the securities soared 30.7 percent, have investors done so well owning longer-dated U.S. government debt.
“Given the run-up we had, there should be some type of correction and consolidation on the back end,” said James Combias, head of Treasury trading in New York at Mizuho Securities USA Inc., one of 20 primary dealers that trade with the U.S. central bank.
Treasuries have returned 6.8 percent this quarter, the most since 8.9 percent growth in the fourth quarter of 2008. U.S. debt securities have gained 2.1 percent this month after a 2.8 percent increase in August, the most since a 3.5 percent gain in December 2008.
The 10-year note yields may fall as low as 1.35 percent by year-end, and 30-year bond yields may drop to 2.35 percent, Deutsche Bank AG analysts including Dominic Konstam in New York wrote Sept. 23 in a research note.
The Treasury Department will sell $35 billion in two-year notes tomorrow, an equal amount in five-year debt the next day and $29 billion in seven-year securities Sept. 29.
Geithner called on governments over the weekend at the annual meeting of the International Monetary Fund to unite with the European Central Bank to beef up the capacity of their 440 billion-euro ($591 billion) bailout fund.
ECB policy makers are likely to debate next week restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.
The reintroduction of 12-month loans to banks will be discussed at the central bank’s Oct. 6 policy meeting, said the official, who spoke on condition of anonymity because the information is confidential. Interest-rate cuts are likely to be discussed, though they are not on the current agenda, according to the official.
“People keep hoping and wanting some sort of plan, but the longer they drag their feet, the better chance the flight-to- quality trade will get going again,” said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, a brokerage for institutional investors. “Long-term, you still want to buy the dips from 1.90 to 2 percent on 10s, assuming nothing new comes out of Europe.”
Fed Debt Buying
The Fed said last week that it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less to aid growth. The central bank will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries in an attempt to spur housing and refinancing.
The central bank will buy Treasury securities 13 times per month and sell its holdings of U.S. government debt six times under its plan to lower borrowing costs known as Operation Twist, according to a statement today from the New York Fed.
The Fed will sell $8 billion to $9 billion of nominal Treasuries five times a month per operation and $1 billion to $1.5 billion of Treasury Inflation Protected Securities, or TIPS, in one operation. The Fed will buy Treasuries 12 times a month and TIPS once a month.
--With assistance from Daniel Kruger and John Detrixhe in New York. Editors: Dennis Fitzgerald, Greg Storey
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