Bloomberg News

Treasury 30-Year Bonds Drop in Longest Losing Streak Since 2007

October 12, 2011

Oct. 12 (Bloomberg) -- U.S. 30-year bonds fell for a sixth day in the longest losing streak in four years as speculation Europe’s leaders will be able to contain the region’s sovereign- debt crisis reduced the refuge appeal of the securities.

Treasury 10-year yields climbed to a six-week high before the U.S. sells $21 billion of the debt. Thirty-year yields were at almost the highest in three weeks as European Commission President Jose Barroso called for a reinforcement of crisis-hit banks and a faster start for a permanent rescue fund. Investors bet for the first time in three weeks that Treasury notes will decline, a JPMorgan Chase & Co. customer survey showed.

“Yields are rising ahead of new supply and as more positive sentiment about Europe and global growth enter the market,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 22 primary dealers that trade with the Federal Reserve. “The concessions in prices that we are seeing should help the auctions go better as people will look to come in at cheaper levels.”

Thirty-year yields climbed 10 basis points, or 0.1 percentage point, to 3.20 percent at 12:34 p.m. in New York, the highest level since Sept. 21. The yield hasn’t risen for six days since the period through May 18, 2007. The 3.75 percent bond due in August 2041 fell 1 31/32, or $19.69 per $1,000 face amount, to 110 5/8.

The 10-year yield increased eight basis points to 2.22 percent and touched 2.23 percent, the highest since Sept. 1.

Thirty-year yields have advanced 25 basis points since Oct. 6, the day before a Labor Department report showed U.S. payrolls added 103,000 jobs in September, more than economists predicted.

Yield Outlook

Economists in Bloomberg surveys taken from Oct. 5 to yesterday raised year-end forecasts for two-year note yields and lowered projections for 10- and 30-year yields. Two-year notes will yield 0.25 percent on Dec. 31, according to the median estimate, compared with the previous forecast of 0.2 percent. Ten-year notes will yield 2.1 percent, versus an earlier projection of 2.22 percent, and 30-year bonds will yield 3.25 percent, versus 3.6 percent.

The Fed is due to release at 2 p.m. minutes of its last meeting. Policy makers at the Sept. 20-21 session said the central bank 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.

It sold $8.87 billion today of Treasuries maturing in two years or less as part of the program. The securities were due from March 2013 to October 2013.

Treasury Auction

The Treasury 10-year notes scheduled for sale today yielded a record low 2 percent the last time they auctioned on Sept. 13.

“The auction today will be interesting and will give us insight into whether domestic and foreign investors see these levels as attractive given the backup, or if they are going to put up their hands and see how far the risk rally runs,” said John Briggs, a U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities Inc. in Stamford, Connecticut, a primary dealer.

Investors at last month’s 10-year offering bid for 3.03 times the amount of available debt, versus the average of 3.16 for the past 10 sales. Indirect bidders, a category that includes foreign central banks, bought 48.5 percent of the securities, versus the 10-auction average of 48.8 percent.

The government will sell $13 billion of 30-year bonds tomorrow. It auctioned $32 billion of three-year debt yesterday.

Barroso, speaking to the European Parliament in Brussels, called for the payout of a sixth loan to Greece. He urged a “coordinated approach” to deliver a “significantly higher capital ratio of highest quality capital” for banks, while offering government funds only as a last resort. Banks that require aid would be barred from paying dividends or bonuses.

‘Affordable Rates’

“The most important problem is they have to make sure that the major economies of Europe that are under pressure now are able to borrow at affordable rates,” Treasury Secretary Timothy F. Geithner said yesterday in an interview with Bloomberg Television. “They recognize the need to do more than they’ve done so far.”

Treasuries returned 6.4 percent in the third quarter, the most since the U.S. economy was in a recession in the final three months of 2008, amid demand for the safety of U.S. debt, a Bank of America Merrill Lynch index shows. They declined 1 percent this month.

The percent of net shorts on Treasury notes in JPMorgan’s “all clients” survey, or bets that the price of the securities will fall, rose to 2 percent for the week ending Oct. 11. That compared with a net long position, or bets prices will rise, of 11 percent the prior week. About 85 percent of the clients surveyed remained neutral.

The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, widened to as much as 2.05 percentage points yesterday, the most in a month, signaling investors are increasing wagers that consumer-price increases will accelerate as the economy recovers. The gap was 1.98 percentage points today.

--Editors: Greg Storey, Dave Liedtka

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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