Bloomberg News

Treasuries Fall First Time in 3 Days on Greece, Stimulus Wagers

August 21, 2012

Treasuries dropped for the first time in three days on speculation a proposal to ease Greece’s bailout terms will help curb Europe’s financial turmoil and on waning bets the U.S. will add further stimulus.

Ten-year note yields traded at almost the highest level in three months before data this week forecast to show U.S. home sales and durable-goods orders rose last month, reducing the likelihood the Federal Reserve will start a third round of debt purchases under quantitative easing. The euro reached a six-week high versus the dollar on optimism euro-region leaders are tackling the region’s debt crisis.

“It’s a full risk-on trade,” said Dan Mulholland, head of U.S. Treasury trading in the capital markets unit of BNY Mellon Corp. “It’s been driven by what’s been going on in Europe. That could change with one headline.”

Ten-year note yields rose two basis points, or 0.02 percentage point, to 1.83 percent at 9:49 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent security due in August 2022 fell 7/32, or $2.19 per $1,000 face amount, to 98 1/8. The yield climbed to as high as 1.86 percent yesterday, matching the most since May 11 as well as the 200-day moving average.

Lower Volume

Treasury trading volume reported by ICAP Plc, the largest inter-dealer broker of U.S. government debt, dropped yesterday to about $140 billion, the lowest level since May 7. Daily volume has averaged $239 billion this year through yesterday.

Concessions are possible for Greece so long as Prime Minister Antonis Samaras shows a willingness to meet the main targets set out in his country’s bailout program, Norbert Barthle, the budget spokesman for German Chancellor Angela Merkel’s Christian Democratic Union, said in a telephone interview today. Luxembourg Prime Minister Jean-Claude Juncker, the head of the euro group of finance ministers, is scheduled to visit Greece tomorrow. Merkel and French President Francois Hollande meet in Berlin on Aug. 23.

U.S. purchases of existing homes rose 3.2 percent in July from the month before, when it slid 5.4 percent, based on a Bloomberg News survey of economists before the data tomorrow. Sales of new homes increased 4.3 percent last month, following an 8.4 percent decline in June, according to a separate poll. That data will be released in two days.

Bookings for durable goods in July climbed 2.5 percent from June, a Commerce Department report Aug. 24 will show, based on another survey.

‘Too Aggressively’

Fed Bank of Atlanta President Dennis Lockhart said U.S. policy makers face a risk of easing too much while trying to spur a “disappointing” three-year-old economic recovery.

“There is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms that involve making tough choices about the allocation of public resources,” Lockhart said today in a speech in Atlanta. While “monetary policy can exert a powerful positive influence on an economy,” it “is not a panacea,” he said.

The Fed is scheduled to sell as much as $8 billion of Treasuries due from September 2014 to April 2015 today, according to the Fed Bank of New York website.

The sales are part of Chairman Ben S. Bernanke’s effort to swap shorter-term Treasuries in the central bank’s holdings with those due in six to 30 years to put downward pressure on long- term borrowing costs.

Treasury Auctions

The U.S. is scheduled to announce on Aug. 23 the sizes of its auctions of two-, five- and seven-year notes next week.

It will probably sell $35 billion of two-year debt on Aug. 28, the same amount of five-year notes the following day and $29 billion of seven-year securities on Aug. 30, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey.

Maturing Treasuries available for reinvestment will total $50.4 billion, and the sales will raise $48.6 billion of new cash, according to Wrightson.

The August slump in bonds is poised to end, based on a Bloomberg survey of economists. Ten-year yields will be at 1.78 at Dec. 31, according to the responses, with the most recent projections given the heaviest weightings.

Investors in Treasuries held on to bets in the past week that the prices of the securities will increase even as yields climbed, according to a survey by JPMorgan Chase & Co.

Net Longs

The proportion of net longs, or bets the securities will rise was steady at 10 percentage points in the week ending yesterday. The percent of outright longs was unchanged at 19 percent for the second straight week, while the percent of outright shorts, or bets the securities will fall in value, held steady at 9 percent, the lowest level since February, according to the survey.

Investors left neutral bets unchanged at 72 percent for the third straight week, the survey reported.

An index of Treasury Inflation Protected Securities has lost 2.3 percent in August, according to Bank of America Merrill Lynch indexes. The last time the securities fell as much in a full month was October 2008, when credit markets froze around the world.

Treasuries that don’t offer inflation protection have fallen 1.4 percent in August, heading for the biggest monthly loss since December 2010.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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