Bloomberg News

Treasuries Decrease as European Agreement Reduces Refuge Demand

December 09, 2011

Dec. 9 (Bloomberg) -- Treasuries fell for the first time in three days as European leaders agreed to tighten budget rules and speed the start of a rescue fund to next year, reducing the bid for a refuge.

Yields on 10-year notes rose from the lowest level this month as a demand that bondholders bear losses was dropped. The benchmark yields pared their weekly drop ahead of a report forecast to show U.S. consumer confidence rose in December to the highest level since June.

“The agreement is a step in the right direction,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a brokerage. “Risk markets are giving the benefit of the doubt, and that’s taken the shine off” U.S. government debt securities.

Yields on 10-year notes increased five basis points, or 0.05 percentage point, to 2.02 percent at 7:25 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities due in November 2021 fell 13/32, or $4.06 per $1,000 face amount, to 99 27/32.

The 10-year note yields earlier touched 1.96 percent, the lowest level since Nov. 28. They were still poised for a weekly decrease of two basis points. The 30-year bond yields increased four basis points to 3.04 percent today, leaving them little changed for the week.

Nineteen months since euro leaders forged their first plan to contain debt turmoil, their fifth comprehensive effort added 200 billion euros ($267 billion) to the war chest and tightened rules to curb future debts. They sped the start of a 500 billion-euro rescue fund to next year and dropped a demand that bondholders shoulder losses in rescues.

U.S. Debt Demand

Demand for U.S. debt as a result of Europe’s crisis pushed a gauge of Treasuries due in 10 years or longer up 21 percent in the past six months, the best performance among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, after accounting for currency changes.

Ten-year note yields in the U.S. will climb to 2.42 percent by the middle of next year, according to the average forecast in a Bloomberg News survey of analysts, with the most recent forecasts given the heaviest weightings.

The U.S. will auction $32 billion of three-year notes on Dec. 12, $21 billion of 10-year debt the next day and $13 billion in 30-year bonds on Dec. 14, the U.S. Treasury Department said yesterday. The government will also sell $12 billion of five-year Treasury Inflation Protected Securities on Dec. 15.

Fed Debt Buying

The Federal Reserve is replacing $400 billion of shorter maturities in its holdings of Treasuries with longer-term debt to cap borrowing costs in a plan it announced in September. It’s scheduled to buy as much as $2.75 billion of securities due from 2036 to 2041 today as part of the program, according to the New York Fed’s website.

The threat of slowing economic growth will maintain demand for U.S. securities, said Hans Goetti, the Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which oversees the equivalent of $1.5 billion in global assets.

“The U.S. economy has strengthened a bit lately, but it’s still not where it should be,” he said. “Bonds still make a lot of sense.” Ten-year yields may fall to less than 1.5 percent next year, Goetti said.

The Thomson Reuters/University of Michigan index of consumer sentiment rose to 65.8 in December from 64.1 in the prior month, according to a Bloomberg News survey before today’s report. Fewer Americans filed applications for jobless benefits last week, the Labor Department said yesterday.

--Editors: Dennis Fitzgerald, Nicholas Reynolds

To contact the reporter on this story: Lukanyo Mnyanda in London at; Wes Goodman in Singapore at

To contact the editor responsible for this story: Daniel Tilles at

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