Bloomberg News

Treasuries Fall Before Auction as European Leaders Meet on Debt

October 26, 2011

Oct. 26 (Bloomberg) -- Treasuries declined as European leaders met on the region’s debt crisis and the U.S. prepared to auction $35 billion of five-year securities in the second of three note auctions this week for a total $99 billion.

U.S. bonds pared losses as concern grew that the debt- crisis talks are stalling. Data showed orders for U.S. durable goods other than transportation equipment climbed in September. The Federal Reserve is selling as much as $9 billion of Treasuries maturing in 2014 as part of its plan to support the economy by lowering longer-term borrowing costs.

“This week is a little difficult with all the supply that’s hitting the market,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, one of 22 primary dealers that trade with the Fed. “You have to balance the near- term dynamics in rates from the overseas events with the supply in Treasuries.”

Ten-year Treasury yields rose three basis points, or 0.03 percentage point, to 2.14 percent at 11:13 a.m. New York time, according to Bloomberg Bond Trader prices. They fell yesterday to as low as 2.10 percent, the least since Oct. 18, and rose to as high as 2.18 percent today.

Thirty-year bond yields increased two basis points to 3.15 percent after earlier reaching 3.18 percent.

Treasuries trimmed losses as a European official said the capacity of region’s bailout fund may not be determined until November. Stocks erased gains, and the Standard & Poor’s 500 Index declined 0.2 percent.

Deadlock With Banks

European Union talks with banks on bondholder losses as part of a second Greek rescue package are deadlocked and have been suspended, an EU official said. The EU is seeking voluntary participation by banks, though a forced solution can’t be ruled out, the official said in Brussels on condition of anonymity because the talks are private.

Today’s summit caps 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 the European Financial Stability Facility, the rescue fund.

Treasury yields had reached their highs of the day after Germany’s lower house of parliament approved plans to increase the capacity of the EFSF.

In the U.S., demand for goods meant to last at least three years, excluding airplanes and automobiles, increased 1.7 percent, exceeding the forecast in a Bloomberg News survey that called for a 0.4 percent increase, figures from the Commerce Department showed today in Washington. Total bookings decreased 0.8 percent, depressed by a 26 percent plunge in planes.

New Homes

Purchases of new U.S. houses rose more than forecast in September. Sales climbed 5.7 percent to a 313,000 annual pace, figures from the Commerce Department showed in Washington. The median estimate of economists surveyed by Bloomberg News called for a gain to 300,000.

The five-year notes being auctioned today yielded 1.060 percent in pre-auction trading, versus a record low 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.

The Fed sold $8.87 billion of Treasuries due from March to September 2014 as part of its program to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further and counter rising risks of a recession.

--Editors: Greg Storey, Dave Liedtka

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

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


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