Treasuries rose, pushing 10-year yields to a two-week low, as investors sought the safest assets on concern Europe’s debt crisis is poised to flare again.
Bonds stayed higher as a $29 billion auction of seven-year Treasuries drew the highest demand since August from a category of investors that includes foreign central banks. Greece will probably have to restructure its debt again, a Standard & Poor’s official said yesterday. Federal Reserve Chairman Ben S. Bernanke said this week the economic recovery isn’t assured.
“The uncertainty surrounding the situation in Europe has moved back toward the forefront,” said Chris Ahrens, head interest-rate strategist in Stamford, Connecticut, at UBS AG, one of 21 primary dealers that are obligated to bid in U.S. debt auctions. “We’ve seen a little bit of pressure in the risk markets. We’re back to risk-off.”
Benchmark 10-year note yields dropped four basis points, or 0.04 percentage point, to 2.16 percent at 5:03 p.m. in New York, according to Bloomberg Bond Trader prices. It touched 2.15 percent, the lowest level since March 14. The 2 percent securities maturing in February 2022 advanced 11/32, or $3.44 per $1,000 face amount, to 98 19/32. The yields increased two basis points yesterday.
The yield on the current seven-year note fell four basis points to 1.54 percent and reached 1.53 percent, also the lowest level since March 14.
Volume (ICPTVOL) declined. About $291 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, compared with $299 billion yesterday and $160 billion on March 26. The average daily volume over the past year is $267 billion.
Stocks slid, with the Standard & Poor’s 500 Index falling as much as 1 percent before ending the day down 0.2 percent.
Treasuries have lost 1.2 percent this quarter in the biggest three-month decline in more than a year, according to Bank of America Merrill Lynch indexes, as the U.S. economy showed signs of improvement. They dropped 2.7 percent from October through December of 2010.
The declines were led by securities maturing in 10 years or more, which are down 5.1 percent since Dec. 31, the indexes show. The global government bond market has returned 0.4 percent since then, while the global broad bond market is up 1.1 percent, the data show.
Treasury 10-year yields will climb to as high as 3 percent by Dec. 31 in what may be the end of the 30-year rally in Treasuries, according to BlackRock Inc., the world’s largest money manager, with $3.51 trillion in assets. The yield reached 2.4 percent on March 20, the highest since October, after dropping to a record low 1.67 percent six months earlier.
“Even after the recent yield spike, many bonds look richly valued,” BlackRock executives including Rick Rieder, chief investment officer for fundamental fixed-income portfolios, wrote in a report dated March 28. “We believe yields will grind higher, with benchmark 10-year U.S. government bonds likely yielding 2.75 percent to 3 percent by year-end.”
Increases in yields will probably be capped by purchases by central banks and “investors desperate for yield,” they wrote in an update to the firm’s 2012 investment outlook.
Treasuries gained earlier after Moritz Kraemer, head of sovereign ratings at S&P, said another debt restructuring of the outstanding debt of Greece, where the euro region’s debt crisis began in 2009, “may be down the road” and may involve bailout partners such as European governments. Kraemer spoke late yesterday at an event in London.
European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement for finance ministers. Euro-area officials meet tomorrow in Copenhagen to discuss the measure.
‘Far From Over’
“While the situation in the euro region may have improved, it’s far from over, and this concern should continue to underpin demand for haven assets like Treasuries,” said Matteo Regesta, a senior fixed-income strategist at BNP Paribas SA in London.
Bernanke said today the pace of recovery from the recession has been “extremely sluggish,” while action by the world’s central banks helped prevent another Great Depression. He made the comments in slides prepared for a lecture to students at George Washington University.
U.S. policy makers don’t rule out further options to support growth, Bernanke said on March 27, according to a transcript of an ABC News interview provided by the network. The central bank bought $2.3 trillion of debt under two rounds of quantitative easing from December 2008 to June 2011.
The Fed sold $8.6 billion of Treasuries today maturing from July 2014 to March 2015 as part of a program to replace $400 billion of shorter-term debt in its holdings with longer maturities to cap borrowing costs.
Bonds gained even after initial claims for U.S. jobless benefits fell. Applications fell 5,000 in the week ended March 24 to 359,000, the lowest since April 2008, the Labor Department reported.
Today’s auction was the last of three note offerings this week totaling $99 billion. The seven-year securities drew a yield of 1.590 percent, compared with a forecast of 1.572 percent in a Bloomberg News survey of nine primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.72, versus an average of 2.86 for the previous 10 sales.
“The market is holding up here; there are definitely buyers of Treasuries out there,” said Justin Lederer, an interest-rate strategist in New York and the primary dealer Cantor Fitzgerald LP.
Foreign Central Banks
Indirect bidders, the investor class that includes foreign central banks, purchased 42.8 percent of the notes. That compared with an average of 40.2 percent for the past 10 offerings and was the highest since reaching 51.7 percent in August. Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, bought 13.4 percent, versus an average of 13 percent at the past 10 sales.
The securities drew a yield of 1.418 percent in February at the last sale and reached a record low of 1.359 percent at the January auction.
The government sold $35 billion of five-year debt yesterday at a yield of 1.040 percent and the same amount of two-year securities on March 27 at 0.340 percent.
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