Bloomberg News

Treasuries Drop as European Leaders Work to Resolve Debt Crisis

November 29, 2011

Nov. 29 (Bloomberg) -- Treasury 10-year notes fell for a third day, the longest streak in five weeks, as stocks gained globally on optimism European leaders are intensifying efforts to contain the region’s debt crisis.

The cost of insuring bonds in the Asia-Pacific region against default fell as European Union leaders prepared to meet today. Investor Jim Rogers said it is “absurd” to rank the U.S. among top-rated borrowers, after Fitch Ratings yesterday gave the nation’s debt a negative outlook while affirming its AAA grade. U.S. home prices probably fell at a slower pace and consumer confidence rose, economists said before reports today.

“We’re seeing a lot of risk assets starting to respond to what appears to be more determined effort to address some of the core issues in Europe,” said Tony Morriss, head of interest- rate research in Sydney at Australia & New Zealand Banking Group Ltd. “That would start to undermine longer-term, safe-haven support in some of the bond markets.”

U.S. 10-year rates rose three basis points to 2 percent as of 7:03 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 dropped 9/32, or $2.81 per $1,000 face amount, to 99 30/32, heading for the longest run of losses since the three days ended Oct. 24.

The MSCI Asia Pacific Index of shares rose 1.8 percent. The MSCI All Country World Index of stocks gained 0.4 percent, after rallying 3.1 percent yesterday, the most in a month.

TED Spread

The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, shrank by one basis point to half a percentage point. It was the biggest narrowing in two weeks. The difference is still almost double this year’s average.

Japan’s 10-year yield was unchanged at 1.065 percent, matching the highest level in almost three months, after a government report showed the nation’s jobless rate rose to 4.5 percent from 4.1 percent.

European leaders are working toward a Dec. 9 summit meeting to regain investor confidence. Finance ministers from the 17- member monetary union meet in Brussels today to discuss how to strengthen the European Financial Stability Facility rescue fund.

The Markit iTraxx Japan index of credit-default swaps fell eight basis points, or 0.08 percentage point, to 2.02 percentage basis points, Deutsche Bank AG prices show. The decline was the most since Oct. 28, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The Markit iTraxx Australia index fell five basis points to 2.12 percentage points, according to Westpac Banking Corp.

The contracts pay the buyer face value in exchange for the underlying bond if a borrower fails to meet its debt agreements.

Property Values

Treasuries fluctuated throughout November in response to European efforts to convince investors that the nations in the region will be able to pay their debts.

Demand for the relative safety of U.S. securities resulted in a 1.2 percent gain this month as of yesterday, based on Bank of America Merrill Lynch data. German bunds fell 0.7 percent and Japanese bonds were little changed, the indexes show.

The MSCI All Country World Index of equities handed investors a 6.8 percent loss in the period, according to data compiled by Bloomberg.

Treasuries due in 10 years and more have returned almost 28 percent in 2011, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for changes in currency rates.

The flight to quality may continue, said Kei Katayama, the leader of the foreign-debt group at Daiwa SB Investments Ltd. in Tokyo, which has the equivalent of $63.5 billion in assets.

“Yields will stay around this level,” said Katayama, who runs Asia’s second-biggest bond fund. “It’ll take time to solve this problem. The crisis is very severe.”

Fed Purchases

The Fed is scheduled to buy as much as $2.75 billion of Treasuries due from 2036 to 2041 today as part of a plan announced in September to replace $400 billion in shorter maturities with longer-term debt to cap borrowing costs.

The S&P/Case-Shiller index of property values dropped 3 percent in September from the same month in 2010, after decreasing 3.8 percent in August, according to the median forecast of economists surveyed by Bloomberg News before the report is released today. The Conference Board’s confidence index probably climbed to 44 this month from 39.8 in October, based on the responses.

The U.S. lost its last stable outlook from the three biggest credit-ranking companies after Fitch lowered the nation to negative following a congressional committee’s failure to agree on deficit cuts. Standard & Poor’s cut its ranking for U.S. debt by one step to AA+ from AAA on Aug. 5. U.S. marketable debt has risen to a record $9.75 trillion.

“The U.S. is not triple A,” Jim Rogers, the investor and author of the book “Hot Commodities,” said in an interview on Bloomberg Television today. “That is absurd. The debts are rising by staggering rates.”

--With assistance from Yusuke Miyazawa in Tokyo. Editors: Nate Hosoda, Rocky Swift

To contact the reporter on this story: Wes Goodman in Singapore at vwgoodman@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

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


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