Bloomberg News

Treasuries Rise on Slower China Export Growth, ECB Banking View

October 13, 2011

Oct. 13 (Bloomberg) -- Treasuries rose, with 30-year bonds ending the longest losing streak in four years, as stocks fell and a Chinese report showing export growth at the weakest in seven months added to signs global economic growth is waning.

Benchmark 10-year note yields fell from almost a six-week high as the European Central Bank said the involvement of private-sector banks in euro-area bailouts through enforced investor losses would risk financial stability. Minutes of the Federal Reserve’s September meeting released yesterday showed some officials wanted to keep more bond buying as an option. The U.S. is scheduled to auction $13 billion of 30-year bonds today.

“Treasuries remain generally well-supported due to the uncertain outlook and central-bank activity,” said Kornelius Purps, a strategist at UniCredit SpA in Munich. “It’s a bit stunning that the Treasury market has been suffering in the past couple of weeks. It’s probably not the advance today which is surprising but rather the sell-off” that preceded it, he said.

Yields on 30-year bonds fell three basis points, or 0.03 percentage point, to 3.17 percent at 7:16 a.m. in New York, according to Bloomberg Bond Trader prices. The 3.75 percent securities maturing August 2041 gained 1/2, or $5 per $1,000 face amount, to 111 2/32.

The 10-year note yields dropped three basis points to 2.19 percent after rising yesterday to 2.27 percent, the highest level since Sept. 1.

‘Significant Stress’

While private-sector involvement “is certain to place significant stress on the solvency of banks and other private financial institutions in the country concerned, it will also have an impact on the balance sheets of banks in other euro-area countries,” the ECB said in its monthly bulletin today.

The Stoxx Europe 600 Index fell 0.9 percent, and futures on the Standard & Poor’s 500 Index expiring in December dropped 0.1 percent. The euro depreciated 0.5 percent to $1.3726.

Treasuries have returned 5 percent since the end of June, a Bank of America Merrill Lynch index shows. German bunds, perceived to be Europe’s safest government debt securities, have risen 6.2 percent, and Italian securities have lost 4.6 percent.

China’s exports climbed a less-than-forecast 17.1 percent in September from a year earlier, the customs bureau said in Beijing. The trade surplus fell to $14.51 billion, the smallest since May.

The U.S. trade deficit widened 2.2 percent in August to $45.8 billion, according to a Bloomberg News survey before the Commerce Department’s report today.

Fed Minutes

Fed officials saw “considerable uncertainty” that U.S. economic growth will pick up, the central bank said in the minutes of its Sept. 20-21 meeting. Policy makers decided at the gathering to replace $400 billion of Treasuries in the bank’s portfolio with longer-term debt to reduce borrowing costs.

The central bank plans to buy $4.25 billion to $5 billion of Treasuries maturing from October 2017 to August 2019 today as part of the program, according to its website.

“Treasury yields will fall again,” said Masazumi Fukuoka, a senior dealer at the Singapore branch of Mitsubishi Trust & Banking Corp., a unit of Japan’s largest publicly traded lender. “I don’t believe there’s recovery in the economy, and there’s still concern over Europe.”

The 30-year U.S. bonds being sold today yielded 3.17 percent in pre-auction trading, versus a record low 3.31 percent at the last sale of the securities Sept. 14.

Buyers submitted orders for 2.85 times the amount of debt offered last month, the most since March. Indirect bidders, the group that includes foreign central banks, bought 39.4 percent of the securities, the highest level since April.

--With assistance from Wes Goodman in Singapore. Editors: Dennis Fitzgerald, Nicholas Reynolds

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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