Bloomberg News

U.S. 30-Year Yields at 3-Month High on Auction, Greek Debt Deal

February 09, 2012

Feb. 9 (Bloomberg) -- Treasuries fell, pushing 30-year bond yields to a three-month high, as the sale of $16 billion of debt was met with lower-than-average demand after Greece announced a deal on austerity measures required for a financing package, damping haven demand.

Bidding at the government’s three note and bond offerings this week totaling $72 billion was weaker than similar sales last month as investors responded to reports of progress addressing Europe’s debt crisis. Data also showed the U.S. economy is continuing to strengthen along with demand for risky assets, such as stocks, which have gained for three consecutive days. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. boost holding of Treasuries last month.

“We are seeing positive sentiment come out of Greece, which is a positive for risk assets and is contributing to the weakness in Treasuries,” said Eric Van Nostrand, an interest- rate strategist at Credit Suisse Group AG in New York, one of the 21 primary dealers that are required to bid at the auctions. “Treasury demand remains generally strong, but the bullish trend is the weakest in the long end, and we saw that in today’s auction.”

The yield on the current 30-year bond rose three basis points to 3.18 percent at 5 p.m. in New York, according to Bloomberg Bond Traders prices. It reached 3.23 percent, the most since Oct. 31. The 3.125 percent bond due November 2041 fell 18/32, or $5.63 per $1,000 face amount, to 98 30/32.

Yields on the benchmark 10-year note added two basis points to 2.04 percent. The Standard & Poor’s 500 Index added 0.2 percent.

Gross Buys

Gross increased the proportion of U.S. government and Treasury debt in Pimco’s $250.5 billion Total Return Fund in January to 38 percent from 30 percent in December, according to a report placed on the company’s website. He raised mortgages to 50 percent, the highest since June 2009, from 48 percent in December. Newport Beach, California-based Pimco doesn’t comment directly on monthly changes in its portfolio holdings.

The bonds sold today drew a yield of 3.240 percent, compared with an average forecast of 3.231 percent in a Bloomberg News survey of nine of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.47, compared with 2.6 at the January offering and an average of 2.66 for the previous 10 sales.

The ratio of bids to debt sold declined at the Feb. 7 three-year note sale to 3.3 from 3.73 last month, and to 3.05 at yesterday’s 10-year note auction from 3.29 in January.

Yield Difference

The difference between yields on Treasuries maturing in two and 30 years, known as the yield curve, widened to 2.94 percentage points, the most since Oct. 28 when the difference was 3.08 percentage points before Japanese financial officials sold yen and bought dollars, funneling proceeds into the U.S. government debt market.

“The long end of the curve should continue to steepen as inflation expectations are rising in that sector given the Fed’s efforts on the economy,” Van Nostrand said.

Indirect bidders, an investor class that includes foreign central banks, purchased 29.2 percent, compared with 31.9 percent of the notes at the January sale and an average for the past 10 offerings of 33 percent.

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 14.7 percent of the notes, compared with 7.2 percent at the last sale and an average of 16.1 percent for the past 10 auctions.

Bond Returns

Thirty-year bonds have lost 4.4 percent this year after returning 35.5 percent last year, more than triple the 9.8 percent gain by the broader Treasury market, according to Bank of America Merrill Lynch indexes.

The Treasury sold $24 billion of 10-year debt yesterday and $32 billion in three-year notes on Feb. 7. This week’s auctions will raise $22.4 billion of new cash as maturing securities held by the public total $49.6 billion.

The Treasury announced plans today to sell $9 billion of 30-year Treasury Inflation Protected Securities on Feb. 16. TIPS are intended to provide investors with a hedge against inflation. The securities rise or fall in value with movements in the government’s consumer price index, with a three-month lag.

Greece’s government reached a deal on austerity measures to secure a 130 billion-euro ($173 billion) rescue, according to an e-mailed statement from the Greek prime minister’s press office. European finance chiefs may defer ratifying the deal.

Greek Update

“It’s up to the Greek government by concrete actions -- through legislation, other actions -- to convince its European partners that the second program can be made to work,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today as he arrived for an emergency meeting of euro-area finance ministers in Brussels.

Applications for U.S. jobless benefits decreased 15,000 in the week ended Feb. 4 to 358,000, Labor Department figures showed today. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg News survey. The four-week moving average, a less-volatile measure of claims, declined to 366,250, the lowest since April 26, 2008.

Fed Chairman Ben S. Bernanke said Feb. 7 the 8.3 percent rate of unemployment in January understates weakness in the U.S. labor market.

“It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work,” Bernanke said that day in response to questions at a hearing before the Senate Budget Committee in Washington. “There are also a lot of people who are either out of the labor force because they don’t think they can find work” or in part- time jobs.

Fed Policy

The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.

The central bank bought $4.95 billion of securities due from June 2018 to November 2019 today under the plan, according to the New York Fed’s website.

The U.S. may begin selling floating-rate notes for the first time in the second half of the year to help sustain demand for Treasuries while funding record budget deficits, according to Wall Street bond dealers.

Issuance may total about $10 billion a month, based on forecasts from nine of the 21 primary dealers that act as counterparties for the Fed. The Treasury Borrowing Advisory Committee, the group of bond dealers and investors that meets quarterly with the Treasury to share insights on the debt market, unanimously endorsed the sales, according to minutes of the group’s meeting released Feb. 1. A Treasury official who briefed reporters on condition of not being named said the next day that a decision on floating-rate notes could be made as soon as May.

--Editors: Paul Cox, Greg Storey

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net;

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


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus