Bloomberg News

Treasuries Fluctuate After EU Fails to Agree on Greece

November 21, 2012

Treasuries fluctuated after European finance ministers failed to agree on a Greek debt-reduction package.

U.S. government securities due in 10 years and longer have returned 2.2 percent in the past month, the most among securities in 144 indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies. Euro-area finance ministers plan another meeting next week after more than 11 hours of inconclusive talks. Volatility on Treasuries fell to the lowest level since 2007.

“We’ve got a bit of support from this stalemate, which has put the focus back on the risk around what’s happening in the euro zone and Treasuries have at least stopped falling,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “The market is going to err on the side of safety first until we get a proper resolution and a feeling we are on more stable ground.”

The benchmark 10-year yield was little changed at 1.66 percent at 7:38 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note maturing in November 2022 was at 99 20/32.

European finance ministers meeting in Brussels failed to agree on how to steer an extra 32.6 billion euros ($41.7 billion) to Greece through 2016 while finding a way to contain the resulting increase in the nation’s debt. A further meeting has been arranged for Nov. 26.

‘Financing Gap’

“We have a series of options on the table on how to close the financing gap,” German Finance Minister Wolfgang Schaeuble told reporters in the Belgian capital. “We discussed the issue very intensively, but since the questions are so complicated we didn’t come to a final agreement.”

U.S. government securities fell yesterday as Federal Reserve Chairman Ben S. Bernanke said an agreement to reduce long-term U.S. deficits may remove an impediment to economic growth and crimp haven demand.

“Yields are going to go up by the end of this year,” said Kim Youngsung, head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $104.4 billion in assets. “The U.S. economy is recovering with a moderate growth rate. I’m confident President Obama will solve the fiscal-cliff problem.”

Fiscal Cliff

The fiscal cliff refers to $607 billion of tax increases and spending cuts that will automatically come into force at the beginning of 2013 unless lawmakers act. President Barack Obama wants to impose higher taxes on the wealthy and reduce spending while Republican lawmakers oppose raising taxes.

Treasury 10-year yields may rise as high as 1.90 percent by Dec. 31, a level that may lead Samsung Asset to buy, Kim said.

A Bloomberg survey of banks and securities companies with the most recent projections given the heaviest weightings projects the rate will rise to 1.74 percent at year-end.

The Thomson Reuters/University of Michigan consumer sentiment index climbed to 84.5 in November from 82.6 in October, according to a Bloomberg News survey of economists before the report at 9:55 a.m. New York time.

The figure will be the final reading for November. The group issued a preliminary number of 84.9 earlier this month. The index hasn’t been higher than 84 since July 2007. Separate reports today will show growth in an index of leading economic indicators slowed and initial claims for jobless insurance declined, based on the Bloomberg surveys.

The Securities Industry and Financial Markets Association recommended a full market close tomorrow for the Thanksgiving holiday and an early close at 2 p.m. New York time on Nov. 23.

Volatility Declines

Bank of America Merrill Lynch’s MOVE index, which measures price swings in Treasuries based on options, fell to 53.7 yesterday, the least since May 2007.

The U.S. is scheduled to sell $13 billion of 10-year Treasury Inflation Protected Securities today. It also plans to announce the sizes of two-, five- and seven-year notes being auctioned next week.

Ten-year TIPS yielded negative 0.78 percent. The rate slid to a record negative 0.96 percent last month, with investors so concerned about inflation that they are willing to accept yields below zero to buy debt that protects against price gains.

The previous 10-year TIPS sale in September drew bids for 2.36 times the amount of debt offered, the lowest since 2009.

The U.S. will sell $35 billion of two-year debt on Nov. 27, the same amount of five-year notes the following day and $29 billion of seven-year securities on Nov. 29, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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