Bloomberg News

Treasuries Fall for 1st Time in 6 Days Before Sale

April 11, 2012

Treasuries weakened for the first time in six days on speculation tumbling yields may erode demand when the U.S. auctions $21 billion of 10-year securities today.

The Federal Reserve sold $8.6 billion in Treasuries maturing between July 2012 and January 2013 as part of the central bank’s economic stimulus plan. Spain’s Prime Minister Mariano Rajoy said the nation won’t need a bailout after debt concern drove U.S. 10-year note yields below 2 percent yesterday for the first time in four weeks.

“You have pressure on the flight-to-quality trade,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “It wasn’t as bad as everybody thought it was in Spain. Not a lot of people want to buy 2 percent notes; 2.10 percent gives you a little bit of a hedge.”

Benchmark 10-year note yields increased four basis points, or 0.04 percentage point, to 2.02 percent at 11:28 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 fell 11/32, or $3.44 per $1,000 face amount, to 99 25/32. The yields slid yesterday to 1.96 percent, the lowest level since March 7.

Yield Pattern

The benchmark note yields touched a 2012 high of 2.4 percent on March 20 and a 2012 low of 1.79 percent on Jan. 31. The 10-year note yields are 84 basis points below the rate of consumer-price inflation. It reached 49 basis points below on March 19.

Two-year note yields increased one basis point to 0.30 percent today. The extra yield 10-year securities offer over two-year debt shrank yesterday to 1.67 percentage points, the narrowest in a month.

The 10-year U.S. Treasuries scheduled for sale today yielded 2.03 percent in pre-auction trading, compared with 2.076 percent at the previous offering March 13.

“The 10-year looks much richer,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “It’s a big chunk of paper that you’ve got to take down at rich levels. We’ve come too far too fast.”

Investors bid for 3.24 times the amount of debt offered last month, compared with the average of 3.13 for the past 10 auctions. Indirect bidders, the group that includes foreign central banks, bought 38.6 percent of the debt, versus the 10- sale average of 43.1 percent.

Debt Returns

The 10-year note has returned 2 percent this month, according to Bank of America Merrill Lynch Indexes.

The U.S. sold $32 billion of three-year notes yesterday, with the class of bidders that includes foreign central banks taking 40 percent of the debt, the most since August.

The Treasury plans to auction $13 billion of 30-year bonds tomorrow, completing this week’s sales of coupon-bearing debt totaling $66 billion.

U.S. three-year notes have returned 0.3 percent this month, according to Bank of America Merrill Lynch indexes. Thirty-year bonds surged 4.1 percent, the figures show.

Benchmark Treasury yields earlier touched 1.99 percent today, matching the so-called lower Bollinger level. Bollinger bands gauge volatility by plotting standard deviations above and below a moving average. Analysts use them to determine a probable range for a rate or security.

Spain’s Debt

Treasuries rallied yesterday as Spanish 10-year yields climbed 22 basis points to 5.98 percent. Italy’s increased 23 basis points to 5.69 percent.

The difference between Spanish and German 10-year yields widened to 4.37 percentage points today, the most since November, before narrowing. An announcement by Spain’s Rajoy this week that he would cut an additional 10 billion euros ($13.1 billion) in education and health spending failed to ease concern that the nation will become the fourth member of the euro area to need a bailout.

Ten-year Treasuries yield 22 basis points more than similar-maturity debt in Germany, reflecting demand for bunds because of Europe’s fiscal crisis. The spread widened to 49 basis points on April 3, the most since January 2011.

Volatility declined yesterday. Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, fell to 75.1 basis points, the lowest since March 13. It reached 93.3 basis points on March 20, the highest level this year.

The Fed sold notes today as part of the central bank’s effort to replace $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs. The U.S. central bank is also due to release its Beige Book business survey.

To contact the reporters on this story: Susanne Walker in New York at; David Goodman in London at

To contact the editor responsible for this story: Robert Burgess at

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