Bloomberg News

Treasury 10-Year Falls for 5th Day on Strong Data Before Auction

January 24, 2012

Jan. 24 (Bloomberg) -- Treasury 10-year notes fell for a fifth day, the longest losing streak in almost two months, as a measure of manufacturing activity was better than forecast and the U.S. readied to sell $99 billion of notes this week.

U.S. two-year notes were little changed as the government prepared to sell $35 billion of the securities and the Federal Reserve gathered to begin a two-day policy meeting. The overall business activity index for mid-Atlantic region factories rose to 12 in January, according to the latest report from the Federal Reserve Bank of Richmond, compared with a 6 expected by analysts surveyed by Bloomberg. Treasuries rose earlier as talks over Greek debt restructuring reached a stalemate.

“The Richmond Fed number was much better than expected and the market is preparing for more supply, which is all weighing on Treasuries,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “Still, there is a lot of uncertainty with regards to Europe, and how that situation will resolve, and that limits any selloff.”

The 10-year yield rose three basis points, or 0.03 percentage point, to 2.08 percent at 11:22 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note maturing in November 2021 traded down at 1/4, or $2.50 per $1,000 face amount, at 99 9/32.

The two-year notes being sold today yielded 0.25 percent in pre-auction trading, compared with 0.24 percent at the previous sale of the securities on Dec. 19, the lowest since August. Investors bid for 3.45 times the debt on sale last month, down from 4.07 times in November.

‘Tight Range’

The two-year note “will continue to trade an extremely tight range around the 25 cent level with rates staying exceptionally low for quite some time,” Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Fed, wrote in a note to clients. “We expect today’s auction to be fair and the easiest of this week.”

The Federal Open Market Committee left its target for overnight loans between banks in a range of zero to 0.25 percent last month and reiterated that economic conditions may warrant “exceptionally low” rates at least through mid-2013. The central bank is forecast to keep the key rate unchanged tomorrow, a Bloomberg survey shows.

Fed Purchases

The Fed bought $4.93 billion of Treasuries 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.

The FOMC plans to release all 17 policy makers’ rate projections for the fourth quarter of 2012, the next few years and the long run, as well as an explanation for their assessments. The Fed will provide the information at the conclusion of a two-day meeting tomorrow.

The decision to announce the projections is the latest effort by Chairman Ben S. Bernanke to increase openness and public understanding of the Fed. Since becoming chairman in 2006, Bernanke has begun holding regular press conferences and voiced his views in television interviews and at town hall meetings. He’s also announced forecasts on economic growth.

“The market is waiting for the Fed and the auction process to get some direction,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

IMF Forecast

The International Monetary Fund cut its forecast for the global economy as Europe slips into a recession and growth cools in China and India. Finance ministers balked at putting up more public money for Greece and called on bondholders to provide greater debt relief, spurring concern the nation may fail to make a March 20 bond payment. S&P would still consider any debt relief being negotiated as a default, according to John Chambers, managing director of sovereign ratings.

A potential Greek default would be “uncatastrophic,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1.3 billion, told Bloomberg Television. “There would be a bad, short, sharp reaction by the market, and then we’d all get on with it. There’s going to be a deep loss suffered by the private holders of Greek debt whether you have a deal or default.”

--Editors: Kenneth Pringle, Paul Cox

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net

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


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