Bloomberg News

Treasuries Head for Monthly Loss Before ECB 3-Year Refinancing Operation

February 28, 2012

Treasuries headed for their first monthly decline since October on speculation a European Central Bank allotment of loans today will bolster investor appetite for higher-yielding assets.

U.S. government securities handed investors a 0.5 percent loss in February as of yesterday, according to Bank of America Merrill Lynch indexes, dropping as the economy showed signs of improvement. Dan Fuss, vice chairman of Loomis Sayles & Co. in Boston, said he’s avoiding Treasuries because central bank purchases are keeping yields artificially low.

“The European problem will gradually be solved, and the U.S. economy is recovering,” said Tsutomu Komiya, who helps oversee the equivalent of $114.8 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage. “The focus will shift from Europe to the U.S. That’s negative for Treasuries.”

Ten-year yields held at 1.95 percent today as of 11:05 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in February 2022 changed hands at 100 15/32. The rate has risen 15 basis points, or 0.15 percentage point, this month.

The ECB may grant the region’s region banks 470 billion euros ($633 billion), making its second offering of three-year loans, according a Bloomberg News survey of analysts. The amount compares with 489 billion euros taken by banks at the last Long- Term Refinancing Operation on Dec. 21, which has helped calm concerns about liquidity in the European banking system.

‘Ridiculous’ Treasury Yields

Fuss, who is a member of the management team for the $21.1 billion Loomis Sayles Bond Fund, said he favors sovereign debt in Canada, Australia and New Zealand.

Treasury yields are so low that they’re “ridiculous,” he said yesterday on “The Hays Advantage” program on Bloomberg Radio. “You have people buying, specifically our own central bank, along with some of their friends offshore, and holding prices artificially high.”

The Federal Reserve is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap long-term borrowing costs under a program it plans to conclude in June.

Fed Chairman Ben S. Bernanke is scheduled to appear today before the House Financial Services Committee for his semi- annual testimony to explain the Fed’s monetary policy and the outlook for the economy.

At its last meeting on Jan. 25, the Federal Open Market Committee said subdued inflation and slack in the economy are likely to warrant keeping interest rates “exceptionally low” at least through late 2014, extending a previous date of mid-2013 or later. Policy makers also set an explicit inflation goal of 2 percent for the first time.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net

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


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