Bloomberg News

Treasuries Climb as Meeting Cancellation Spurs Concern on Europe

October 25, 2011

Oct. 25 (Bloomberg) -- Treasuries rose as the cancellation of a European finance ministers’ meeting spurred concern the region’s leaders may struggle to resolve their debt crisis at a summit tomorrow, bolstering U.S. bonds’ refuge appeal.

U.S. 30-year bond yields fell from the highest level in more than a month as the European Union president’s office said EU finance chiefs won’t meet tomorrow as scheduled. Summits of all EU leaders and euro-area leaders were still set to take place. Treasuries extended gains as U.S. consumer confidence unexpectedly slumped in October.

“The risk-off trade materialized quickly,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 22 primary dealers that trade with the Federal Reserve. “It gives a lot of questions about what the plan is in Europe.”

U.S. 30-year bond yields dropped seven basis points, or 0.07 percentage point, to 3.20 percent at 11:38 a.m. New York time, according to Bloomberg Bond Trader prices. They touched 3.31 percent earlier, the highest level since Sept. 16. The 3.75 percent securities maturing in August 2041 rose 1 14/32, or $14.38 per $1,000 face value, to 110 1/2.

Yields on benchmark 10-year notes slid seven basis points to 2.17 percent. Two-year note yields were little changed at 0.28 percent before the U.S. sells $35 billion of the securities today in the first of $99 billion in note sales this week.

The Standard & Poor’s 500 Index tumbled 1.2 percent, snapping a three-day winning streak.

Confidence Drops

Treasuries added to gains as the Conference Board’s sentiment index decreased to 39.8 from a revised 46.4 reading in September, figures from the New York-based private research group showed. This month’s reading was less than the most pessimistic forecast in a Bloomberg News survey in which the median projection was 46.

The S&P/Case-Shiller index of property values in 20 cities fell more than forecast in August, dropping 3.8 percent from a year earlier, the group said today in New York. The median forecast in a Bloomberg survey was for a 3.5 percent decline.

Policy makers such as New York Fed President William Dudley are among those who believe bolstering housing is among the “most pressing issues” facing the central bank.

Falling home prices pose “a serious impediment to a stronger economic recovery,” Dudley said yesterday in remarks at Fordham University in the Bronx. He predicted “continued modest growth” for the U.S.

Two-Year Auction

The Treasury Department’s auction of two-year notes today in the third offering of the securities since the central bank said on Aug. 9 it intends to keep its target rate for overnight loans between banks near zero until at least mid-2013. The department will sell $35 billion of five-year debt tomorrow and $29 billion of seven-year securities on Oct. 27.

The Fed bought $4.597 billion of Treasuries today due from October 2017 and August 2019, according to its website. The purchase is part of the central bank’s plan, dubbed Operation Twist after a similar program in the 1960s, to lower borrowing costs by buying $400 billion in long-term U.S. debt through June and selling an equal amount of shorter-term holdings.

The meeting of EU finance ministers was canceled until after the trade-bloc ministers and heads of states meet, according to the Polish presidency of the EU. European leaders will meet as scheduled in Brussels, according to the office of EU President Herman Van Rompuy.

‘Based on the Outcome’

“Work on the comprehensive package of measures to curb the sovereign-debt crisis will be continued at the meeting of heads of state and governments of the European Union on Oct. 26,” Kacper Chmielewski, a Brussels-based spokesman for the Polish government, said in an e-mailed statement. “Further work at the level of ministers of finance will be conducted based on the outcome of the heads-of-state meeting.”

Yields on 10- and 30-year Treasuries, which had been little changed at 2.23 percent and 3.27 percent at 9:30 a.m., tumbled after the announcement was made.

“It’s headline roulette,” said Richard Gilhooly, an interest rate strategist at TD Securities Inc. in New York.

Tomorrow’s meeting will cap six days of negotiations aimed at preventing a Greek default, shielding banks and keeping the sovereign-debt crisis from spreading.

--Editors: Greg Storey, Paul Cox

To contact the reporter on this story: Daniel Kruger in New York at

To contact the editor responsible for this story: Dave Liedtka at

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