Bloomberg News

Treasuries Rise After Group of 20, Pushing 10-Year Yields to One-Week Low

February 27, 2012

Treasuries rose, pushing 10-year note yields to the lowest level in more than a week, after Group of 20 nations rebuffed German-led calls for financial support to contain Europe’s sovereign-debt crisis.

Thirty-year bonds advanced for a fourth straight day as investors sought the relative safety of U.S. debt even as Germany’s lower house of parliament approved a second euro- region Greek bailout package worth 130 billion euros ($174 billion). The Federal Reserve bought $5 billion of Treasury notes under its program to keep borrowing costs low.

“We’re seeing little sellers in the market today,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “Whenever you think the market will go to higher yields, something new comes out of Europe.”

Yields on 10-year notes slid five basis points, or 0.05 percentage point, to 1.93 percent at 5:12 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 rose 14/32, or $4.38 per $1,000 face amount, to 100 21/32.

The 10-year yields touched 1.91 percent, the lowest level since Feb. 16, dropping below the 50-day moving average for the first time since that date. The yields have traded as low as 1.79 percent and as high as 2.09 percent this year. Yields on 30-year bonds decreased five basis points to 3.05 percent.

Yield Levels

The next technical level for 10-year note yields should be 1.90 percent to 1.91 percent and then 1.83 percent, said Chris Ahrens, head interest-rate strategist in Stamford, Connecticut at UBS AG, one of the 21 primary dealers that trade directly with the Fed.

“The bulls are in control in a thinly traded session,” Ahrens said. “There’s no supply on the schedule until March. There’s no first-tier economic data.”

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

The next round of Treasury note and bond supply will be on three consecutive days beginning March 12, when the government will sell three-, 10- and 30-year debt. The U.S. will announce the amounts on March 8. The Treasury sold $99 billion in two-, five- and seven-year securities last week.

Volume (ICPTVOL) in the Treasury market has remained below the one- year average of $275 billion. About $204 billion of Treasuries changed hands as of 5:01 p.m. through ICAP Plc, the world’s largest interdealer broker.

Maturity Issues

The difference between the yields on two- and 10-year notes, charted on the yield curve, dropped today to 1.64 percentage points, the lowest on a closing basis since Feb. 2.

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, fell on Feb. 24 to 77.1, approaching the lowest level since July 2007. The five-year average is 112.

G-20 finance ministers and central bank governors said in a statement issued yesterday after a meeting over the weekend in Mexico City that consideration of more funding for the International Monetary Fund depends on Europe’s reassessing its financial backstop against the region’s debt crisis.

“There was some disappointment out of the G-20,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The market holds bullish potential because we have more buybacks than sales.”

German Vote

German Chancellor Angela Merkel’s government pushed through the measure to stave off a collapse of the Greek economy today amid signs of growing resistance and as one of her Cabinet ministers said Greece should leave the single currency. Euro leaders will now shift their focus on whether to bolster the region’s rescue funds as they prepare for a summit in Brussels on March 1-2.

The Greece bailout agreement has failed to restore confidence in credit markets, where traders are paying nine times more to insure European government bonds than they are for Treasuries. While European stocks are off to their best start since 1998, the relative cost of credit-default swaps has risen to a record, according to CMA.

The Markit iTraxx SovX Western Europe index of default swaps linked to 15 nations from Finland to Italy increased nine basis points in February to 348, up 34 percent since July, indicating a rising perception of risk. It reached an all-time high of 385 on Nov. 25. The cost of insuring U.S. debt dropped by more than 40 percent in that period. The ratio between the two rose to a record 9.81 to 1 on Feb. 23.

S&P Downgrade

Greece had its long-term sovereign credit ratings cut to selective default from CC by Standard & Poor’s Ratings Services, which cited an action by Greece’s government regarding its sovereign debt that began a “distressed debt restructuring.”

The downgrade was “pre-announced and all its consequences have been anticipated, planned for and addressed” by the European Council and euro area officials, the Greek Finance Ministry said in an e-mailed statement today.

Fed Chairman Ben S. Bernanke will give his semi-annual monetary policy report to House lawmakers on Feb. 29 and the following day to senators.

“There’s a presumption he’s going to continue to discuss the situation in a dovish light,” said Ahrens of UBS. The discussion “favors a move to lower yields.”

‘Plant the Seeds’

Bernanke may use the speeches to “plant the seeds” for additional bond buying, Ward McCarthy and Thomas Simons, New York-based economists at the primary dealer Jefferies Group Inc., wrote in a report on Feb. 24. The Fed will focus its purchases on mortgage-backed securities, acquiring $500 billion to $650 billion of them to support the U.S. housing market, the report said. The central bank will probably also buy long-term Treasuries, it said.

The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs under a program it plans to conclude in June. It bought Treasuries today maturing from May 2018 to February 2020.

The number of Americans signing contracts to buy previously owned homes rose in January more than forecast.

An index of pending home resales climbed 2 percent after a 1.9 percent decrease in the prior month that was smaller than previously estimated, the National Association of Realtors said today in Washington. The median forecast of 44 economists surveyed by Bloomberg News called for a 1 percent rise.

U.S. 10-year yields will rise to 2.49 percent by the end of this year, according to the average forecast in a Bloomberg News survey, with the most recent estimates given heavier weighting.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

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


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