Bloomberg News

Treasury Bonds Snap Three-Day Decline on Outlook for Recession

September 28, 2011

Sept. 28 (Bloomberg) -- Treasury 30-year bonds snapped a three-day decline on speculation European efforts to solve the region’s debt crisis will fail to stave off a recession in developed economies.

The difference between U.S. five- and 30-year yields narrowed to 2.12 percentage points from this year’s high of 2.88 percentage points in July. The spread shrank to 1.97 percentage points on Sept. 23, the least since January 2010. The U.S. plans to sell $35 billion of five-year debt today, the second of three note auctions this week. The 10-year yield declined to a record low of 1.6714 percent on Sept. 23.

“I can’t say the bond rally is over,” said Tsutomu Komiya, who helps oversee the equivalent of $120.9 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage by market value. “Globally, the business cycle is fragile.”

The 30-year yield dropped one basis point to 3.06 percent at 8:55 a.m. in London, according to Bloomberg Bond Trader prices. The 3.75 percent security due in August 2041 rose 5/32, or $1.56 per $1,000 face amount, to 113 11/32.

Benchmark 10-year yields were little changed at 1.96 percent. The securities are poised for their third monthly gain, with the yield falling 26 basis points from the previous month. The rate will stay below 2 percent through October, Komiya said. A Bloomberg survey of banks and securities companies projects the yield will climb to 2.24 percent by year-end, with the most recent forecasts given the heaviest weightings.

Barroso Comments

Treasuries trimmed gains after European Commission President Jose Barroso said today the European Union should accelerate the start-up of its permanent bail-out fund and the EU will present a study of options on introducing common bonds in coming weeks.

“Bond yields have been unjustifiably low for a while and I guess the market is looking for a reason to get out of these levels,” said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London. “What Barroso said is the catalyst for that. The crisis is not going to be over tomorrow, but what he said suggested leaders are coming up with various options to solve the problem.”

--With assistance from Liza Horowitz, Matt Winkler, Cordell Eddings and Susanne Walker in New York. Editors: Nicholas Reynolds

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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