Bloomberg News

Treasuries Advance as Europe Divisions Increase Safety Demand

October 20, 2011

Oct. 20 (Bloomberg) -- Treasuries rose for a second day as stocks slid amid concern France and Germany are in disagreement over how to resolve the region’s debt crisis, spurring demand for safer assets.

Benchmark 10-year yields approached the lowest in two weeks as a split between the two nations emerged over Europe’s rescue strategy before a summit in Brussels this weekend. The extra yield investors demand to buy benchmark 10-year Treasuries instead of two-year notes narrowed for a second day.

“Since late yesterday, the tone of the headlines has been more disappointing, casting doubt on whether a comprehensive solution can be reached at the weekend,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “Treasuries are outperforming and should continue to outperform given what’s going on here in Europe.”

The 10-year yield fell two basis points, or 0.02 percentage point, to 2.14 percent at 9:11 a.m. London time, according to Bloomberg Bond Trader prices. The 2.125 percent security maturing in August 2021 gained 6/32, or $1.88 per $1,000 face amount, to 99 27/32.

The difference in yield, or spread, between two- and 10- year notes shrank two basis points to 187 basis points.

The Stoxx Europe 600 Index of shares slid 0.9 percent and the MSCI Asia Pacific Index dropped 1.8 percent, erasing gains from yesterday.

Europe’s leaders are searching for ways to maximize the firepower of the 440 billion-euro ($603 billion) European Financial Stability Facility as the debt crisis threatens to spread to the region’s larger economies. A proposal to use the fund to guarantee some bond sales may violate the European Union’s restrictions on bailouts, the Wall Street Journal reported yesterday.

Euro, Bunds

The euro slid 0.4 percent to $1.3710 and the yield on 10- year German bunds, Europe’s benchmark government debt securities, dropped three basis points to 2.03 percent.

“There is still a flight to quality,” said Zeal Yin, a money manager at Taipei-based Shin Kong Life Insurance Co., Taiwan’s second-largest life insurer with the equivalent of $39.7 billion in assets. “The problem is not solved” in Europe, he said. Shin Kong Life increased its Treasury holdings this month, favoring 10- and 30-year maturities, Yin said.

--With assistance from Kristine Aquino in Singapore. Editors: Nicholas Reynolds, Matthew Brown

To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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