Bloomberg News

Treasuries Decline Amid U.S. Growth Optimism Before Debt Summit

October 26, 2011

Oct. 26 (Bloomberg) -- Treasuries fell amid optimism U.S. growth is picking up, with data today estimated to show orders for business equipment excluding transportation rose in September and purchases of new homes increased.

The decline sent 10-year yields up from a one-week low. The Treasury is due to sell $35 billion of five-year notes in t the second of three auctions this week for a total $99 billion. Benchmark notes rose yesterday on concern today’s euro-area summit will fail to find a solution to the region’s debt crisis and after a report showed U.S. consumer confidence slumped.

“The Conference Board consumer confidence report is important, but the reaction was probably excessive,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “We’ve had a streak of stronger data. If we have a softening of concerns in Europe, we might have a bear steepening in the U.S.,” he said, referring to a rise in yields led by longer-dated securities.

Ten-year Treasury yields rose four basis points, or 0.04 percentage point, to 2.15 percent as of 6:53 a.m. New York time, according to Bloomberg Bond Trader prices. The 2.125 percent security due August 2021 declined 10/32, or $3.13 per $1,000 face amount, to 99 25/32. The yield yesterday dropped as much as 13 basis points, the most since Oct. 3.

Amid signs economic growth is gathering pace, Treasuries are poised to hand investors their first monthly loss since June, falling 0.6 percent in October, according to Bank of America Merrill Lynch indexes.

Durable Goods

A report from the Commerce Department today will show orders for durable goods excluding transportation equipment rose 0.4 percent last month, according to the median estimate of 50 economists in a Bloomberg survey. Purchases of new houses increased in September to a 300,000 annual rate from a pace of 295,000 in August, according to a separate survey.

Gross domestic product expanded an annualized 2.5 percent, the fastest pace in a year, according to economists surveyed by Bloomberg News before the Oct. 27 report, after growing 1.3 percent in the previous period.

The five-year notes being sold today yielded 1.05 percent in pre-auction trading, versus 1.015 percent at the sale on Sept. 28. Investors bid for 3.04 times the amount offered last month, compared with the average of 2.80 for the past 10 auctions.

Indirect bidders, the category of investors including foreign central banks, bought 45.9 percent of the notes, versus the 10-sale average of 40.7 percent.

Rising Demand

“Recent auction statistics highlight an up-tick in demand for the sector,” Anshul Pradhan, an interest-rate strategist in New York at Barclays Plc, wrote in a note to clients. “On the other hand, the 5-year sector has recently richened on the curve.”

The U.S. will sell $29 billion of seven-year notes tomorrow, after auctioning $35 billion of two-year securities yesterday.

The Federal Reserve is due to sell as much as $9 billion of Treasuries maturing from March 2014 to October 2014 as part of its plan to stimulate economic growth by lowering longer-term borrowing costs.

The yield on three-year notes rose two basis points to 0.44 percent.

Treasuries rallied yesterday as U.S. and European stocks slid. Today’s European summit comes after six days of haggling among finance ministers, central and commercial bankers, chancellors and prime ministers over the shape of Greece’s second bailout, the recapitalization of banks and the retooling of a 440 billion-euro ($613 billion) rescue fund.

“The risk-asset market has woken up to the fact that perhaps the European policy response is not going to be everything they hoped it would have been,” said Russell Jones, the Sydney-based global head of fixed-income strategy at Westpac Banking Corp., Australia’s second-largest lender. “There’s a good underlying bid for low-risk assets of which the Treasury market is the obvious one.”

--Editors: Matthew Brown, Mark McCord

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net


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