Bloomberg News

Treasury Yield Near Low as Greece Fuels Safety Demand

May 10, 2012

Treasury 10-year yields were 19 basis points from the record low as Greece’s politicians struggled to form a government, increasing speculation that the nation will abandon the euro as its currency as it battles a recession.

The U.S. is scheduled to sell $16 billion of 30-year bonds today, after a $24 billion 10-year auction yesterday drew a record-low rate. Europe’s fiscal crisis and signs of slowing growth are increasing demand for the safety of U.S. debt.

Ten-year yields were little changed at 1.86 percent as of 6:45 a.m. in London, according to Bloomberg Bond Trader data. The 1.75 percent security due in May 2022 changed hands at 99. The record low is 1.67 percent set Sept. 23. The average yield for the past year is 3.82 percent.

“Demand is still there” even after rates tumbled, said Will Tseng, who invests in U.S. debt at Taipei-based Shin Kong Life, which has the equivalent of $53.9 billion in assets. “We’re going to hold” the position in Treasuries rather than consider selling, he said. Tseng said he would like to buy again if the 10-year yield rises to 1.95 percent.

Japan’s 10-year yield increased one basis point to 0.86 percent, after falling to 0.845 percent yesterday, the least since October 2010. Australia’s rate slid to a record low 3.31 percent.

One Country Fewer

As Greece faces political paralysis, a survey of 1,253 Bloomberg subscribers showed 57 percent of investors, analysts and traders predicted at least one country will abandon the euro by year-end. Political leaders remained divided on forming a new government, stoking concern another election could set the stage for the country’s s exit from the currency union.

In the U.S., employers added 115,000 jobs in April, the least in six months, the Labor Department reported May 4.

The Treasury sold 10-year notes yesterday at 1.855 percent, lower than the previous record 1.9 percent in January. It also auctioned $32 billion of three-year notes on May 8.

Bill Gross, who runs the world’s biggest bond fund, cut his holdings of emerging-market debt to a two-year low, selling assets from an area where the International Monetary Fund says growth will slow.

Gross reduced the securities to 7 percent of assets in Pacific Investment Management Co.’s Total Return Fund in April from 10 percent in March, according to Newport Beach, California-based Pimco’s website. He trimmed investment-grade bonds to 13 percent from 14 percent. Treasuries were 31 percent of holdings, versus 32 percent in March, the report showed.

Slowing Growth

Growth in emerging economies will slow to 5.7 percent in 2012 from 6.2 percent in 2011, the IMF said in April.

Gross kept mortgage securities as his biggest holding at 53 percent of assets, according to the report posted yesterday on the Pimco website. The Federal Reserve will probably shift its focus to mortgage securities in its next possible round of bond purchases to keep borrowing rates low, he said in March.

The 30-year bonds being sold today yielded 3.045 percent in pre-auction trading, versus 3.23 percent the last time the government sold the securities on April 12.

Investors bid for 2.76 times the amount of debt offered last month, versus the average of 2.67 percent for the past 10 auctions.

Indirect bidders, the investor group that includes foreign central banks, purchased 30.7 percent of the securities, compared with the 10-sale average of 30.

The government is also scheduled to announce today the size of a sale of 10-year Treasury Inflation Protected Securities scheduled for May 17. The auction will probably be for $13 billion, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.

The Federal Reserve plans to sell as much as $8.75 billion of Treasuries due from October 2013 to January 2014 today, according to the Fed Bank of New York’s website.

The sales are part of the U.S. central bank’s effort to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to hold down borrowing costs.

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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