Treasury 10-year notes rose for a second day as Americans prepared to choose a president with polls showing a close election that boosted demand for the perceived safety of U.S. government securities.
Benchmark securities extended a gain from last week as Greece struggles to win support for measures to obtain a bailout, adding demand for haven assets. President Barack Obama and challenger Mitt Romney will ask voters to choose who will steer the economy during the next four years in tomorrow’s vote as the winner faces the so-called fiscal cliff. The U.S. will sell $72 billion in notes and bonds this week starting tomorrow.
“There are two gigantic 900-pound gorillas in the room in the election and the fiscal cliff,” said Paul Montaquila, head of fixed-income trading at Bank of the West in San Ramon, California. “Until there is more clarity on the election and the fiscal cliff, it’s best to let thing play themselves and sit on the sidelines, and that means investors will buy safety.”
The U.S. 10-year yield dropped three basis points, or 0.03 percentage point, to 1.68 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due August 2022 rose 9/32, or $2.81 per $1,000 face amount, to 99 1/2. The yield fell three basis points last week.
The Federal Reserve bought $1.85 billion of Treasuries due from February 2036 to August 2042 today, according to the Fed Bank of New York’s website. The Fed is swapping shorter-term Treasuries in its holdings with those due in six to 30 years as part of its efforts to support the economy by capping long-term borrowing costs.
The Treasury is scheduled to sell $32 billion of three-year notes tomorrow, $24 billion of 10-year securities the next day and $16 billion of 30-year bonds on Nov. 8.
The U.S. auctioned the same round of debt during the week ended on Oct. 12, selling $32 billion of three-year notes on Oct. 9 with a record 3.96 bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered.
A $21 billion sale of 10-year debt Oct. 10 yielded 1.7 percent with higher-than-average demand, and a $13 billion auction of 30-year bonds on Oct. 11 yielded 2.90 percent.
Obama led Romney 48 percent to 45 percent in an Oct. 31- Nov. 3 national poll conducted by the Pew Research Center, a survey that was deadlocked at 47 percent each a week ago. Polls conducted by NBC News with the Wall Street Journal and ABC News with the Washington Post also showed movement for the president in recent days, albeit Obama’s one-percentage-point edge in both is inside the margin of error for the surveys.
“Domestically, the focus is on the elections tomorrow, and a race that looks to be very close,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “When you have this much uncertainty, people buy Treasuries.”
Group of 20 finance ministers and central bankers meeting in Mexico City pushed for action to head off the so-called fiscal cliff, more than $600 billion of tax increases and budget cuts scheduled to take effect next year unless Congress acts. A draft of the statement to be issued by G-20 policy makers described growth as modest and risks elevated, said an official from one of the countries who asked not to be identified because the statement hasn’t been finalized.
Spanish and Italian debt declined, while German government securities rose. Spain’s 10-year debt added nine basis points to 5.75 percent and Italy’s gained five basis points to 5 percent, while German 10-year yields eased two basis points to 1.43 percent.
“Uncertainty in Greece and the U.S. election outcome is creating an environment of cautious behavior, and that is why we are seeing the Treasury market catch a bid,” said Adrian Miller, director of global market strategy at GMP Securities LLC in New York, said in a telephone interview.
The difference in yield, or spread, between two- and 10- year Treasuries fell to 141 basis points. It reached 140 basis points Oct. 31, the narrowest since Oct. 15.
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which covers about 90 percent of the economy, fell to 54.2 in October from the prior month’s 55.1, the Tempe, Arizona-based group said today. The median forecast of 76 economists surveyed by Bloomberg projected 54.5.
“It’s not too often that the market ignored ISM data, but that is what we are getting because of the political uncertainty at home and abroad,” GMP Securities’ Miller said.
U.S. payrolls expanded by 171,000 last month, following a 148,000 gain in September that was larger than first estimated, the Labor Department said Nov. 2. Unemployment rose to 7.9 percent from 7.8 percent.
Treasuries were also supported as challenges re-emerge in Greece. As the country seeks a 31 billion-euro ($40 billion) financing tranche this month, Prime Minister Antonis Samaras is facing down a revolt in his three-party coalition. The leader of the Democratic Left yesterday reiterated his party’s opposition to changes in the labor law demanded by international creditors. While no date has been set for a vote on that bill, it may come as soon as Nov. 7. The budget vote is slated for Nov. 11.
From the U.S. to Germany and even Japan, where the bond market is twice the size of the economy, investors can’t get enough government securities even though rising debt loads are blamed for curbing global growth.
For the first time since the financial crisis in 2008, all 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies including Treasuries are poised to generate returns on an annual basis. Gains this year range from Portugal’s 47 percent to Japan’s 1.78 percent.
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