Treasury 10-year yields touched a 12-week low after Standard & Poor’s lowered Spain’s credit rating, renewing concern Europe’s debt crisis is deepening and boosting demand for safer assets.
Benchmark notes were set to complete a six-week advance, the longest series of gains since June, before a government report economists say will show growth in the U.S. slowed last quarter. The two-year note yield fell to the lowest level in 11 weeks. Treasury 10-year futures reached a record high before Spain auctions securities next week. U.S. bonds pared their advance after Italy held a debt auction.
“Treasuries benefited from safe-haven demand after the Spanish downgrade,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Concerns over the euro-region debt crisis continue to dominate sentiment. Treasuries will remain supported by external factors, as well as some softening in the macro situation.”
Yields on benchmark 10-year notes were little changed at 1.93 percent at 7:51 a.m. New York time, after reaching 1.88 percent, the lowest since Feb. 3, according to Bloomberg Bond Trader prices. The 2 percent note maturing in February 2022 added 1/32, or 31 cents per $1,000 face value, to 100 19/32. Ten-year rates have fallen four basis points since April 20.
Two-year rates fell to as low as 0.25 percent today, a level unseen since Feb. 10, while the 30-year yield dropped to 3.06 percent, matching the lowest since Feb. 29.
The 10-year note futures contract expiring in June climbed as much as 0.4 percent to a record 132 17/32, before trading little changed at 132 4/32.
“There is a move toward risk aversion, resulting in the buying of Treasuries,” said Akira Takei, head of the international fixed-income department at Mizuho Asset Management Co. in Tokyo, which oversees about $41 billion. “Europe’s debt crisis will probably enter a second round.”
Ten-year yields may drop to 1.5 percent in the next six months, Takei said. He is increasing holdings of Treasuries with longer maturities than 10 years, he said.
S&P lowered Spain’s long-term sovereign credit rating by two levels to BBB+ from A, with a negative outlook. The nation’s budget trajectory is likely to worsen and the country may need to provide more fiscal support to banks, the ratings company said in a statement yesterday.
Spanish, Italian Auctions
Spain, the fourth-biggest economy in the euro region, is scheduled to auction notes maturing in 2015 and 2017 on May 3. The nation’s 10-year bond yields climbed to 6.16 percent last week, the highest this year, and were at 5.95 percent today.
Treasuries pared gains as Italy sold 5.95 billion euros ($7.87 billion) of debt due between 2016 and 2022 today. The nation auctioned 2.5 billion euros of 10-year benchmark bond at a rate of 5.84 percent, up from 5.24 percent at the previous auction on March 29. Investors bid for 1.48 times the amount offered, down from 1.65 times last month.
Ten-year Treasuries were set to rise for the first month since January. A report today will show the U.S. economy expanded at an annualized rate of 2.5 percent in the first quarter from 3 percent in the previous three-month period, economists surveyed by Bloomberg said.
The Federal Reserve bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 to June 2011.
The central bank is also replacing $400 billion of shorter- term debt in its holdings with longer maturities to hold down borrowing costs. It plans to sell as much as $8.75 billion of Treasuries maturing in June 2014 to April 2015 as part of the program, according to the Fed Bank of New York’s website.
U.S. bonds have returned 9 percent over the past 12 months, according to a Bank of America Merrill Lynch gauge. The S&P 500 (SPX) Index of U.S. shares has handed investors a 6.2 percent gain over the same period, including reinvested dividends.
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